Today more and more organizations are awakening to the fact that corporate social responsibility is key to their long- term success and cannot be overlooked.It's just another training day for Scott Noesen. A pragmatist with a low-key manner, he has rolled up his shirtsleeves and is meeting a cadre of 80 managers at the Dow Chemical petrochemical plant in Plaquemine, La., just off theBayou. Noesen's mission—unlike most corporate trainers—isn't to preach the gospel on customer service or quality-control techniques to his troops. Instead, his task is to spark higher-level thinking on such topics as environmental stewardship, community-based development, and corporate responsibility. "For us, these concerns are now being integrated into every facet of our business—from product design in the R&D lab to global marketing," says Noesen, who is Dow's director of sustainable development. "Our goal is to have every member of the workforce understand the philosophy so they can help us develop grassroots initiatives around it."
That's not surprising. Over the past five years a growing number of U.S. corporations like Dow Chemical have developed what management gurus have coined a "sustainable development plan." Simply put, that is a list of commandments imbedded into the corporate mission statement that guides an organization down a moral path so it can rise to the challenges of today's global economy—including AIDS, human rights, pollution, and poverty.
This attack of conscience is caused by a number of concurrent trends that have put the spotlight on corporate ethics. Probably the most notable is the barrage of financial scandals that blew up giant multinationals such as Enron and WorldCom and prodded Congress to enact the Sarbanes-Oxley Bill, legislation that raises corporate accounting and governance standards. But also driving it are two other forces that haven't gotten as much attention: a UN initiative to get multinationals more involved in solving the world's ills, and institutional investors' demand for companies to become more socially responsible.
"U.S. companies are awakening to the fact that corporate social responsibility is key to success and cannot be overlooked," reveals Andrew Savitz, a partner in PriceWaterhouse-Coopers' environmental sustainability business services practice. "They realize that just one insult to their reputation can cause significant damage to their business, and it really concerns them." As he points out, Martha Stewart's alleged insider-trading scheme is a perfect example. Her company's market cap has plummeted by almost $400 million since the charges were made public, although it has never been proven that she engaged in such illegal activity. "This saga proved to corporate America that any ethical misstep can be explosive and very costly, especially for companies with high public visibility," says Savitz.
While there are no definitive statistics that can reveal just how many companies are taking a more principled approach to business, the PriceWaterhouseCoopers 2002 Sustainability Survey Report, which surveyed 140 U.S. companies, noted that 70% had no broad-based sustainability program in place yet. While some were paying attention to environmental issues, they were not sure how to tackle the myriad of other social concerns that need to be addressed. "Many corporate executives feel this should be the business of government, not private enterprise," explains Savitz. "Others are just not sure how to develop these practices. The undertaking is enormous."
The good news is that about 69% of respondents in the PriceWaterhouseCoopers survey are currently reviewing or revising their ethics programs or corporate-governance process. But thanks to the escalating pressure on organizations to conform to higher standards of integrity, soon companies should also begin looking into the broader array of corporate responsibility issues.
That's because senior managers realize that failing to assess their organization's social, economic, and environmental strategies can seriously hurt the bottom line. Among possible nightmare scenarios: loss of a sizeable portion of the workforce to AIDS; the disruption of customer and supplier relationships because the company lacks a social conscience; flight by shareholders and investors angered by self-dealing or unethical behavior; project delays because of a corporation's unwillingness to address community concerns; labor unrest due to exploitive workplace practices; and government fines or litigation based on the firm's poor environmental or product-safety record.
Also contributing to the trend is recent market research that proves that corporate social responsibility (CSR) practices drive profitability. Increasingly, data from such sources as the Sustainable Asset Management Group, which monitors the Dow Jones Sustainability Index, support the view that companies that engage in such activities outperform those that do not (see chart). Perhaps even more telling is anecdotal evidence of this phenomenon emanating from the public-affairs departments of global corporations.
Profiting From Righteousness
For a snapshot of how corporate social responsibility boosts an enterprise's overall performance, one only has to look at British Telecom (BT). The mammoth telecommunications provider, which boasts annual sales of more than $30 billion, has been active in the field since the late 1980s. At first, only philanthropy and environmental management concerns were on its agenda. But after fully developing expertise in those areas, the company expanded into other fields as well, including community development through training and technology.
BT has become a model of how a company can work to assist disadvantaged communities and inspire its staff to be social stewards. The company gives 1% of corporate profits directly to communities each year, which is largely invested in education. Money goes toward teacher training, in-school workshops, and the transfer of digital technology. Employees are also encouraged to give to charity. British Telecom has a charitable matching plan for workers who want to participate. It matches employee contributions to charity up to $1.6 million.
Over the past ten years the company has been tracking the business case for corporate social responsibility by surveying its customers around the world. Its findings are startling: "Our studies show there is a direct link with our progress in corporate social responsibility, customer satisfaction, and brand reputation," reveals Adrian Hosford, director of BT's social policy in London. "About one-third of our corporate reputation is driven by our socially responsible endeavors." As he points out, that's a huge impact.
British Telecom's experience demonstrates a hard truth: Like it or not, every action a corp-oration takes may be interpreted as a statement of what it stands for. That's why a principled company will fortify its reputation. Research proves this point. According to Corporate Citizen Watch, a study conducted by Hill and Knowlton, nearly four out of five Americans say they consider reputation when buying a company's product, and 36% call it an important factor in their purchasing decision. More than 70% of investors consider reputation in their decisions even if that means lowering their financial returns.
Corporate social responsibility has an additional fallout benefit. It often improves an or-ganization's esprit de corps. "Employees tend to feel better when they work for a company committed to improving society," says Savitz of PriceWaterhouseCoopers. "This can reduce turnover and improve worker productivity."
Considering the benefits, how can a company guard its soul and create a broad-based corporate social responsibility program? The task is huge, since it encompasses so much. That's why many companies are turning to the Global Reporting Initiative, an independent organization in Amsterdam that has developed globally acceptable guidelines and best practices for these endeavors.
At the same time, they are also adopting what's known as the Global Compact, nine universal principles on corporate citizenship developed by UN Secretary-General Kofi Annan in the fields of human rights, labor standards, and the environment. The principles derive from the Universal Declaration of Human Rights, the International Labor Organization's Fundamental Principles on Rights at Work, and the Rio Principles on environment and development.
To date, 900 companies, including BT, Cisco Systems, DuPont, and Nike, have joined the Global Compact since it was launched in July 2000. Not only have they agreed to advocate sustainability strategies in their mission statements and annual reports, but some have also joined with the United Nations in partnership projects. Most are now awaiting the creation of global standards by which sustainability performance can be measured. So far metrics in the field are limited, but that may change. The International Organization for Standardization in Geneva, creator of ISO 9000 and thousands of other business and government standards, is now exploring the issue.
Moving Toward a Higher Ground
While experts have a variety of opinions on how to develop and maintain a successful CSR program, most agree that what is most important is stakeholder dialogue. In order to establish proper long-term sustainability goals, companies need to find out how employees, communities, and investors feel about the array of social concerns—such as pollution and worker safety—that affect their daily lives. One way to do this type of soul-searching is through community focus groups. Another way is to set up an independent corporate advisory council representing a cross-section of interest groups. Dow Chemical has had one for 12 years. Today the panel includes an advisor for the International Institute of Environment and Development, the management editor of The Economist, a social psychologist, and an academic from a developing country. According to Noesen, "their insights are invaluable."
Public reporting on corporate citizenship is also key. With investors and shareholders focused on transparency issues, it's critical that companies publish information about their activities. This helps increase public awareness about an organization's socially responsible business strategies. It also helps legitimize these practices in the eyes of investors, explains Don Carli, president at Nima Hunter, a New York management consulting firm specializing in CSR.
Another crucial task is to develop an environmentally friendly supply chain. Stonybrook Farms is one company that has a model approach. Besides sourcing products with natural ingredients so they are organic, it has assembled a network of suppliers that agree to refrain from using hormones in their milk production. In addition, it supports family farms whenever possible.
But like any other management credo, corporate responsibility initiatives will never work without a champion. It's up to the CEO and other senior executives to wave the CSR flag for all to see. Those leaders set the policy and align the organization on all of these issues. One of their goals should be to integrate all sustainability practices into the core processes of their organizations. As Sarah Macleod, chief executive of Echo Research in London, explains, "Unless it is part of the way the company operates in business every day, it can never catch fire and be effective."
Ivan Seidenberg, chairman and CEO of Verizon, agrees. That's why he's made this a broad issue by integrating the company's social responsibility goals into the core of the company's mission statement, which is known as Verizon's Promise. Its mantra: We bring the benefits of communications to everybody—our customers, communities, shareholders, and employees. "We believe just earning a profit is not good enough," Seidenberg explains. "We have to make sure we are serving the public and are the most respected brand in communications." It's not surprising, then, that some of the company's well-known CSR programs include grants geared to improving literacy, enriching communities through technology, and encouraging employee volunteerism through the Verizon Foundation, in addition to supporting the efforts of minority suppliers through the Verizon Supplier Diversity Initiative.
Seidenberg has also appointed officers to oversee each of the many areas of corporate social responsibility—from community development to corporate governance to diversity to ethics to philanthropy. "Each of these directors drives our CSR efforts through the whole organization," he explains. And they are incentivized to make sure their efforts succeed. As Seidenberg reveals, 10% of the annual bonus of the company's top 2,500 managers is tied directly to diversity and service goals, on top of the regular financial and operational objectives.
For the rest of the staff there are corporate recognition awards, which are dollar awards for those employees who have made big contributions towards the company's many social causes, including service to the community and work-environment initiatives. Under this company program, $1.24 million was doled out to winners this year.
"Over time you build a culture rooted in social responsibility," notes Seidenberg. "To succeed you must enlist the support of everyone in the organization." The only way this can be accomplished is through training and incentives. That's why at Verizon all of the 227,000 employees get ethics training.
For visionary chieftains dedicated to CSR, the crusade is a lot like John the Baptist's. "They are spreading a new orthodoxy that's just started to gain widespread recognition," says Carli. "You can't have this kind of a paradigm shift overnight."
— Lori Ioannou
Editorial Consultant and Contributor
Stan L. Friedman has served as a corporate social responsibility consultant and senior marketing executive for a number of consumer products, packaged goods, entertainment, publishing, media, and health care companies and nonprofit and government organizations. He has written about CSR-related issues for Red Herring, Brandweek, The San Francisco Business Times, Variety, The Hollywood Reporter, Corporate Philanthropy Report and The Chronicle of Philanthropy. Friedman is also an adjunct professor at San Francisco State University and Golden Gate University.
