Defining the terms of corporate responsibility, performance excellence
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In the last ten years, profound changes in global leadership have encouraged and pressured corporations to find solutions to the world’s most pressing problems. Central to these changes has been an informal movement among nongovernmental organization (NGO) activists, influential thought leaders, a handful of corporate leaders, a slowly building army of shareholder activists, “LOHAS”1 (lifestyles of health and sustainability) consumers, and employees passionate about sustainability. This has coalesced into a progressive vision of the relationship between business and society.
In plain terms, this vision asks companies to be accountable for things they do (good, bad or indifferent) to the environment, to communities, to employees or people in general. What constitutes “good” or “bad” is subject to negotiation among stakeholders–groups, individuals and communities that could be significantly affected by the way a business behaves. Business is asked to report transparently on both the harm and benefits it creates for the environment, individuals and communities. Finally, the vision asks business to contribute positively to improve environmental sustainability, development opportunities for low-income individuals and overall quality of life. The vision expects a company to make these efforts in ways that can benefit its own competitiveadvantage.
Excellence in corporate responsibility equals alignment.
Over the past four years, a group of industry leaders has come together under the banner of the Global Leadership Network (GLN)2 to understand what makes companies excel in addressing these issues. The GLN was founded by IBM, along with noted business and society think tanks, AccountAbility and The Boston College Center for Corporate Citizenship. Its founding members include industry leaders 3M, Alcoa, BASF, BT, Cargill, CEMEX, Diageo, Dow, GE, GM, Manpower, Nokia, OMRON, Philips, Pfizer, Prudential, Samsung, SK Telecom, Santander, Verizon, Vivo and a network of seventeen Chinese companies. The mission of the GLN is to define and advance the terms of excellence in corporate responsibility performance.
For GLN, the equation for excellence is deceptively simple: Excellence in corporate responsibility equals alignment.
Alignment means that the company succeeds in delivering on expectations that key stakeholders have of the company related to priority environmental, social and governance issues in a way that drives business success.
GLN finds that achieving excellence means advancing an interconnected, reinforcing management framework that builds from a commitment to engaged learning with stakeholders. Truly excellent performers build systems that capture the voice of the stakeholder. As with the analogous voice of the customer, companies empower stakeholders to influence strategy, product and process design.
Where conventional wisdom dictates that companies insulate themselves against demands to improve their social and environmental performance, excellent performance seeks to align such demands with business strategy. Excellent performers view major societal problems as business problems requiring strategic solutions.
As the axiom states: “Structure follows strategy.” As such, excellent performers augment the traditional terms of operational excellence. Corporate responsibility leaders develop new processes of “externally integrated management” that extend beyond the office walls to engage others in solutions. This means building into core systems openness, transparency, engagement, partnership, nontraditional relationships and expectations for all employees to be responsible for ethical behavior. This approach is consistent with what experts say the future holds for corporate management.
The rest of the framework depends on the commitment of companies to lead. Excellent performers clearly specify in which areas of sustainability they will be the best in class, choosing the few vital issues where they will lead. Where they cannot lead, they encourage partnership to tackle the problems left unsolved.
None of these framework elements deliver excellence by themselves. They must all be present, working in harmony and extending across the enterprise, its business units, product lines, regional operations, staff functions and supply chains. If not, a company is likely operating inconsistently.
Case Studies of Corporate Responsibility Excellence
Derived from the framework elements, GLN finds twelve core attributes that specify what a company must achieve to deliver excellence.
1) The company captures the voice of the stakeholder in strategic planning and quality management process. Activists continually place high expectations on CEMEX, a leader in the cement and concrete industry, to support local communities with high rates of poverty. As CEMEX launched a new planning effort to design programs to support these communities, managers took the time to engage with community residents. As they gathered information, the effort took a 180-degree turn. Managers learned poor families were overpaying for ready-mix bags of concrete used to build homes. This led CEMEX to partner with residents to build a new business initiative providing financing to poor families to more easily purchase concrete. The resulting business initiative, Patrimonio Hoy, opened up a new global business initiative selling to the previously overlooked market of low-income individuals.
2) The company builds a system to enable key stakeholders to hold the company accountable for its performance on priority environmental, social and governance (ESG) issues.
Excellent companies are those that succeed in creating competitive advantage and shareholder value.
GE and Alcoa have both established panels of influential stakeholders to advise them on the intersection of business performance and corporate responsibility. GE’s panel has helped it build the first global, corporate-wide human rights policy in its industry.
3) The company designs strategies that enable performance on ESG priorities to advance competitive strategy. 3M requires all business unit leaders to build ESG issues into formal strategic planning. Nokia, seeing projections that over three billion people could afford a cell phone by 2012, launched a business strategy to sell handsets to the poorest of the poor.
4) Company R&D, product design and service innovation functions all advance ESG performance.
IBM sees corporate responsibility initiative design as an element of its overall R&D function. A recent example is the use of grid computing to generate super-computing power applied to vital global health issues that lack sufficient resources. The World Community Grid has applied massive computing power to support research on HIV-AIDS and other epidemics.
5) The company assesses, organization-wide, the contribution of major business activities to ESG objectives and business value.
British Telecom vets major new products and invests against clear criteria on potential environmental and social impact.
6) Company management of human resources advances ESG performance. OMRON, the Japanese sensing and control technology company, creates clear chains of authority to provide planning, communication, oversight and guidance from the line to the C-suite on performance related to ethical conduct.
7) Company management of physical and investment assets advances ESG performance.
Dow and BT have moved to create internal pools of investment capital, encouraging employees to innovate sustainable solutions related to product design and manufacturing.
8) Marketing and sales functions are consistent with and advance ESG priorities.
Verizon has created a customer panel composed of individuals representing the interests of the elderly and those with disabilities. Verizon engages with the panel to understand the needs and concerns to ensure these populations have access to vital telecommunications products and services. Marketing and product design teams have taken what they have learned to design and launch special products targeted specifically at these populations. They found the results exceed their most optimistic business projections, creating a vibrant new product line that serves a critical need.
9) The company engages its value chain to proactively seek solutions to ESG challenges.
IBM has partnered with several companies across its industry to help form the Electronics Industry Code of Conduct. The EICC establishes a consistent set of principles and criteria for responsible global supply chain management.
10) The company sets a clear target to be a top performer in its industry (or where relevant as compared to another segment) related to its ESG priorities.
Dow, GE, 3M and IBM have set emissions reductions targets putting them at the forefront of their industry.
11) Work in partnership (with government agencies, NGOs, competitors, suppliers, clients, etc.) to solve the toughest global challenges.
Cargill, the global food company, is a major supplier of commodities such as coffee, cocoa, sugar and soy, which present difficult social and environmental challenges. In many countries, workers face abusive practices. Small farm owners receive pennies in payment. Farming practices waste water, harm biodiversity and contribute to climate change. With no easy solutions, Cargill joined others in its industry to work with NGOs and governments to create codes of practice related to global commodity supply chains.
12) Engage public or institutional relations to enhance public governance on ESG priorities.
Diageo views the problem of binge drinking as a global public health problem. The company works actively with governments from Australia to Africa to establish stronger regulations and enforcement to prevent the abuse of its product.
These examples represent common attributes that responsible companies share in their pursuit of excellence. They are designed to be practical and replicable across industry sectors and geographical regions, and also allow companies to benchmark their performance against others.
GLN believes that excellent companies are those that succeed in creating competitive advantage and shareholder value in a way that creates solutions to key environmental, social and economic challenges through operations, products and services.
These companies create shared value by integrating material ESG issues and key stakeholder considerationsinto management functions and along their value chain. GLN members have been among the first to realize and pursue this level of excellence.
Adherence to these attributes drives corporate responsibility as a core, integrated and aligned business process. True business leaders realize they must continuously improve corporate performance in relationship to society. And leaders must champion new forms of societal leadership that are responsible, accountable and shared by major sectors of society.
