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Vodafone – Sustainability Integration Case Study 1

VODAFONEVodafone is a world leading mobile telecommunications company. Vodafone provides a wide range ofcommunication services, including voice calls, SMS text messaging, MMS picture and video messaging, internetaccess and other data services. The group has 221 million direct customers including private consumers andcorporate customers in diverse markets around the world.

Governance

Overall responsibility for corporate responsibility (CR)/sustainability lies with

Vodafone’s Group Executive Committee (ExCo). The ExCo is chaired by theChief Executive Officer (CEO) and consists of two CEOs from Vodafone’soperating business units – Europe and Emerging Markets (Asia-Pacific,America, Eastern Europe and Africa), as well as the Group Corporate AffairsDirector, CFO, Chief Technology Director, Group Strategy and New BusinessDirector, Group General Counsel and Corporate Secretary, Chief Executive ofGlobal Business Development, Chief Marketing Officer and Group HR Director.CR performance is regularly discussed at ExCo and once a year at Vodafone'smain Board.

The Group Corporate Affairs Director is the ExCo member with responsibilityfor CR, and Vodafone’s Group Corporate Responsibility Director reports to theGroup Corporate Affairs Director, as well as leading the Group CR team.

The Group CR team works with local operating companies and Groupoperational functions to develop policies on CR issues. Additional Groupresources are also dedicated to key issues, such as radio frequency (RF) fieldsand health, social products and enterprise, supply chain management andcontent standards. For example, there is an ElectroMagnetic Fields (EMF) anda Health and Safety Boards and committees on Content Standards, Privacyand Social Investment, and specific individuals (8) within the Group CR teamfocus on these issues or other more strategic aspects.

A number of the main Group operational functions are involved in CR invarious ways:•

Group Supply Chain – is responsible for embedding CR into supplierperformance management processes. CR accounts for 10% of our overallsupplier rating.

•

Group Marketing – is responsible for ensuring operating companiesimplement the responsible marketing guidelines; the Content Standardsteam is co-ordinating implementation of content controls for customers;and a Social Products and Enterprise team has been established to developproducts with social value.

• Employment – human resources policies in individual operating companiesmay differ because Vodafone has expanded in part through acquisition. TheGroup Human Resources Director is responsible for ensuring policies andprocedures are consistent for equal opportunities, diversity, health andsafety, employee appraisal, training and communication.

•

Network rollout – operating company CEOs are responsible forimplementing CR policies and guidelines including performance incommunity consultation, energy usage, ozone-depleting substancesidentification and phase-out and waste management.

Vodafone believes that CR issues are most effectively managed as part of corebusiness processes rather than as a separate 'add-on'. CR is thereforemanaged within the Group’s mainstream management systems andresponsibility allocated to operational line managers. Local operatingcompanies play the key role in implementing CR policies and the CEO of eachlocal operating company has overall responsibility for CR. Every operatingcompany has employees dedicated to CR who work directly with the Group CRteam and local business functions. The sizes of these teams vary among localoperating companies (from one member to four-six in Germany and Italy forexample). This does not include employees working for local Vodafone




VODAFONEfoundations.

Each local operating company is free to define the CR function in whateverform works best for them, and no guidance on what the structure should be isprovided by corporate. Vodafone Germany, for example, established a CRdepartment as part of the Corporate Communications Division. It reports

directly to the operating company Chief Executive. A steering committee,which includes the directors of CR, Marketing, Sales, Technology and LegalAffairs, was also established to ensure that CR is integrated throughout thecompany. Vodafone Germany also appoints officers within their respectivedepartments to manage key CR focus areas - environment, child protectionand RF fields, which are fully aligned with Group CR focus areas and globalstrategy, but are implemented taking into account local context.

Vodafone has established a suite of quantitative (203) indicators to measureand report to stakeholders its impact. A qualitative set of (200) keyperformance indicators (KPIs) designed as questions are used to measureinternal performance. Local operating companies answer these questions on aquarterly basis, on issues such as energy efficiency, waste management,handset collection, reuse and recycling, health and safety (H&S) and

community contributions. Each question is given a score of 0-15 to assess thelevel of commitment, integration, management of issues, and implementation.Vodafone has also defined specific CR performance targets to be embedded inthe quarterly performance review process, where the senior management ofGroup and local operating companies meet to evaluate the performance oflocal operating companies. Annual results from this review process are alsoreported to the Group Board of Directors.

A web-based application is used to collect and report on all CR data andinformation from local operating companies. Data are reported through adashboard containing the absolute results colour coded to represent progressagainst targets:•

Green indicates if the local operating company’s score, compared to thetarget that was agreed by operating company CEOs at the beginning of

year is on track/met;• Amber if the local operating company is within 0 and -5% of meeting its’

target; and• Red if the local operating company has missed its’ target by more than 5%.

Reports are generated at the Group-level, but all CEOs can access thedashboard to immediately see their results. They will call people responsiblefor different areas within their company and inquire as to why they haven’tbeen able to meet the established targets. They then must explain this totheir Group operating business unit CEO (Europe or Emerging Markets). TheGroup operating business unit CEOs will have a call with the Group CEO as towhy they are not meeting agreed targets. At the end of the year, bonuses aretied to personal performance also against CR targets. (See the assurancesection for a discussion on data validation to prevent self-inflation of local

operating company scores).

Part of Vodafone’s business case for CR is that the company wants to berecognized as a leader. It wants to explore the potential of promotingdevelopment and linking with partners to meet societal needs. It has anumber of interesting initiatives in place that will illustrate this (see businessdevelopment section).

Business Processes

S t r a t e g i c Pl a n n i n g : In April 2005, Vodafone approved a five-year CR plan to help the companyreach its vision of being one of the most trusted companies in the markets itoperates by 2010. The CR strategy sets priorities in the following areas:




VODAFONE•

Maintain high ethical standards;• Understand and respond to our stakeholders' priorities;• Ensure our operating standards are consistent across the Group;• Deliver on our promises in three key areas:

ο

Responsibility to our customersο Reuse and recycling of mobile phones

ο

Energy and climate change; and• Capture the potential of mobile to bring socio-economic value through

access to communications.

Local operating companies identify areas and activities to help contribute tomeeting these strategic priorities.

B u s i n e s s Pl a n n i n g : Local operating companies work to the strategic priorities identified in thecorporate CR strategy, and to the established suite of quantitative andqualitative KPIs for the organization (see governance section above). Everysix months, the Group CR team runs a workshop for CR managers and issueowners from all of Vodafone’s operating companies. The workshops providethe opportunity for colleagues from around the world to meet, develop CRstrategies and share best practices. Affiliates (companies where Vodafonedoes not own a controlling share) and partner networks are also invited to

attend these workshop, as well as external stakeholders.

Issues of high priority that might emerge from these workshops and requirefurther development by the company would result in a CEO from one of thelocal operating companies sponsoring the issue, and then bringing togetherpeople from throughout the company to further discuss the issue and definepolicies, guidelines/standards and KPIs to manage the issue effectively. Onceapproved, these would then be rolled-out across the company. These policies,guidelines/standards become tools to help local operating companies operateconsistently according to corporate strategy.

Vodafone also uses a Group-wide issues management process to ensure thatCR issues are fed into the company’s long-range planning across localoperating companies. The process involves each operating company and most

Group functions reporting to the Corporate Affairs Board1 on a quarterly basisthe most significant local CR issues. The Board ensures that someone withinthe business is assigned to develop appropriate responses to each issue,feeding into strategic decision-making. This process helps Vodafone ensurethat its strategic decision-making is taking full account of social trends andanticipating new issues as soon as possible.

B u s i n e s s D e v e l o pm e n t : Whenever Vodafone considers a merger and acquisition (M&A), a Global CRteam member is included in the team that conducts a due diligence review.Vodafone considers a range of CR issues relating to the country of operation,such as the local supply chain, environmental regulations or levels of briberyand corruption, as well as reviewing the acquisition’s existing CR policies andprograms. The M&A team incorporate in the country report the informationprovided by the Group CR team regarding the main CR issues Vodafone will befaced with, what the local company is currently doing, and if Vodafone might

face negative reputational impacts by acquiring the local company.

In terms of product development, Vodafone is increasingly working atintegrating CR into its decision-making. Beginning in 2002, Vodafone beganconsidering how its products and services could meet societal needs instead of just customer needs related to network coverage for example. The companybegan by commissioning third-party research to understand the impacts ofmobile phones. Research indicated that there was a link between growth in

1 Includes Corporate Affairs Directors from several local operating companies and departmental heads within GroupCorporate Affairs.




VODAFONEGDP and increases in mobile phone penetration. Social research identified thatpeople with phones were impacted and empowered, having a stronger senseof well-being, an increased social network and increased economic status.Considering this research, Vodafone began exploring how its products andservices could further enhance positive impacts and address some of thesocietal challenges facing various people around the world. As an example,

the company trialed a program in Kenya that facilitates financial transactionsthrough mobile phones, where they act like virtual bank accounts, receivingcash, or through a combination of PIN numbers, facilitating payments. Such aservice addresses the issue of financial exclusion and makes money transfersa lot easier, as funds can be received from various outlets and thesender/receiver does not need a bank account, only a mobile phone; as wellas supporting areas that do not have local bank infrastructure. The technologyis also focused on greatly assisting the flow of funds from migrant workersback to their families.

Vodafone has also explored using mobile phones as a means to pay for goodsthrough the transfer of airtime to a recipient rather than an exchange basedon money. Such a program has been tried in countries like Kenya, Tanzania,Albania and Egypt. The next frontier is mobile public services so people can

access services without having to physically go to government offices. Thiscould greatly assist those without easy access to government public services.Vodafone is also working with partners such as BT, HSBC, Unilever, etc. toaddress the needs of the bottom of the pyramid of the world’s population. Thisis an area where Vodafone’s local operating companies have a crucial role toplay by identifying the local societal needs. Local operating companies sendproposals that are considered by the Steering Groups in Research andDevelopment (R&D). Five-six ideas have been considered in the last sixmonths; full business cases are built and if approved, the company movesforward on the idea, conducting a trial, usually through partnering with adevelopment agency and NGOs to implement.

R i sk M a n a g em e n t : Vodafone’s CR team feeds into three unique processes that help the companyto manage CR risks. The company has an issues management process

(described in business planning section above) that helps to identify potentialimplications to Vodafone of issues that might impact the business and becomea risk.

The company also uses a reputation risk management program that identifiesthe views of stakeholders, media coverage and legal views. It is run byCorporate Affairs and helps to define issues that could pose a risk to Vodafoneand if considered a big risk and impact, then the company would start to builda program to deal with the impact.

The third risk management approach taken by the company that incorporatesa range of CR questions is Vodafone’s internal audit control questionnairewhich is completed by all local operating companies once a year and signedoff by their CEOs. This questionnaire is part of the company’s formal risk

identification process. The results are reported to the Vodafone Group PlcBoard of Directors.

Each local operating company will use the same processes but the results willbe unique reflecting local variables. Vodafone Romania, for example identified,identified RF fields and health, products and services for people with specialneeds, waste management and energy use as priorities in the 2006 financialyear. Vodafone Greece was approached a number of years ago with aproposal to provide gambling services through mobile phones. In applying CRthinking, considering the social impact and the potential negative impact onthe company’s reputation, Vodafone said no to this opportunity.




VODAFONEISO 14001, EMAS and/or SA8000 and therefore require external verificationthat their operations meet these standards.

Stakeholder Engagement

Com m u n i t y R el a t i o n s : Vodafone engages its stakeholders in a variety of formal and informal ways,both globally and locally. The majority of engagement is carried out withinbusiness functions and in local operating companies. As an example, most

local operating companies have their own local external stakeholder advisorycouncils to help them identify and work through issues. At the global level,there is also a 12-person advisory council with experience in the UKgovernment, academia, other businesses, NGOs such as Oxfam, and CRconsultancies/opinion leaders such as SustainAbility and Accountability.

Vodafone sought feedback from stakeholders on its Group CR Strategy as wellas on communications such as the CR report. Where Vodafone is findingstakeholder feedback to be most effective, however, is when it is focussed onspecific issues and solutions and informs the work of the experts and policymakers in the company. Vodafone has recently changed its strategy related tostakeholder engagement from generic events with stakeholders presentingtheir opinions on broad strategy and programs and the company’s latestreport, to topic specific conversations related to just privacy, or what can be

done to support the people at the bottom of the world’s pyramid, for instance.Vodafone is using this new format to try and understand stakeholderexpectations related to specific topics and finding the results to be muchricher.

Vodafone encourages stakeholder engagement at local operating companiesby incorporating three questions into the quarterly assessment/reportingagainst KPIs. One of the questions specifically relates to how commentsreceived from stakeholders have been integrated into the company’soperations. Local operating companies are also required to have a StakeholderEngagement Plan in place.

I n v e s t o r R e l at i o n s : Over the last year Vodafone held 14 meetings to discuss CR issues with

institutional investors, both mainstream and socially responsible investors(SRIs), as part of the company’s CR investors’ road show. In addition,

Vodafone meets with individual investors that request a meeting to discussspecific issues. The meetings are used to talk about performance and also forVodafone to get information on the views from investors on specific issues. Atthe present time, the CR Director is involved in these meetings but there is apreference that Investor Relations staff take on more of this role. The CEOalso desires to address CR issues more fully in his speeches/presentations tothe investment community. Like many companies, Vodafone responds to SRIquestionnaires, and actually has one team member dedicated to responding tothese investor requests. Vodafone believes that it does well in integrating CRissues into communications and relations with key company investors and thefinancial community but that it could do better in this area.

Human Resources

R ec r u i t m e n t a n d

O r i e n t a t i o n :

Another area of improvement identified by Vodafone is the integration of CR

factors into human resource (HR) management. Vodafone is a young companyof only 20 years, ten of which were spent as a company of 300 employees.Through aggressive acquisition, Vodafone now has 60,000 employees. Thishas resulted in a number of HR policies throughout local operating companiesand the need to focus on standardizing these policies and practices.

At the global level, CR is integrated into induction training for all newemployees, through workshops that talk about the company’s CR policies. Allemployees also receive the booklet on ‘Passion for the World Around Us' thatidentifies the company’s values and its commitment to the goals of CR.




VODAFONEVodafone conducts an annual employee survey that includes questions aboutwhether the company is generating trust and adequately managing itsenvironmental impact. Vodafone does seek the approval of employees onwhat they are doing and the ratings are generally above 90%. Employeesreport being more highly motivated because of the company’s CR initiatives,with local operating companies on average having a better understanding of

CR and related higher pride for working with Vodafone.

Vodafone’s internal website is also used for collecting information or ideasfrom employees on CR initiatives.

T r a i n i n g : Vodafone delivers a variety of global training through the use of e-tools,including an e-module on CR. Vodafone is developing a set of new indicatorsto identify the number of employees that have also received classroom CRtraining (e.g. ten global managers received training in social audit; 84% ofSupply Chain Management managers and employees have received trainingon the Code of Ethical Purchasing).

Other communication mechanisms are utilized to increase awareness of CRissues such as: topic emails (e.g. climate change); themed events (e.g.invited employees to attend showing of the documentary, An Inconvenient

Truth, followed by a panel discussion where the Corporate Affairs Directordiscussed climate change and what Vodafone is doing to improve itspractices); monthly CR teleconferences (CR is also discussed between Groupfunctions and operating companies in many other forums connected withoperational issues); and the monthly newsletter from the CEO normallycontains a paragraph to discuss Vodafone’s CR initiatives (e.g. one of the lastnewsletters addressed some of the external recognition Vodafone receivedrelated to CR). The CEO’s newsletter often addresses Vodafone’s way ofdealing with an issue.

Vodafone also includes CR in the training for its managers. A session on CR isincluded in the Global Management Development Program, which is a three-day course for the most senior managers. The participants debate a series ofissues from the perspective of different stakeholder groups and devise a

response.

Vodafone is also working at standardizing processes related to training amongits local operating companies. For example, Vodafone UK is piloting an e-learning training course on the Business Principles for all UK employees. Ifsuccessful, this would be rolled out across local operating companies.

P e r f o r m a n c e A p p r a i sa l a n d

Com p e n s a t i o n :

In 2006, specific CR performance targets were defined and embedded into theperformance quarterly review process. Local operating CEOs and Groupoperating business unit CEOs now have their bonuses also tied to personalperformance against CR targets.

CEOs cascade the performance targets throughout their organizations so thelocal CR team members, the energy efficiency manager, etc. would also havea CR-related target.

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