This article was first published in the September 2013 International edition of Accounting and Business magazine.
Making big business loveable isn’t always easy. Only a fifth of Americans approved of the behaviour of large companies, a lower popularity rating than used-car salesmen or head lice.
Still businesses increasingly see much to be gained from being the good guy. Companies perceived as having a positive impact on society and the environment can be at a competitive advantage. The recent flourishing of ‘corporate social responsibility’ was the theme of an online chat sponsored by ACCA USA and hosted by Lane Greene, business correspondent of The Economist.
Evidence that corporate do-gooding can help the bottom line has been mounting. A study by the Reputation Institute in New York found that people’s willingness to buy, recommend, work for and invest in a company is driven 60% by their opinion of the business and just 40% by their judgment of the product itself. That gives companies a powerful incentive to devote plenty of attention to their standing in society. This can range from taking care of employees and donating their expertise to local good causes to helping feed the poor and preserving the environment.
Of course, words are cheap and real cultural changes are harder, according to Andy Savitz, a member of ACCA USA’s panel and author of The Triple Bottom Line: How Today’s Best-run Companies Are Achieving Economic, Social and Environmental Success and How You Can Too (see also feature, page 20). Sceptics of corporate social responsibility can point to numerous cases of ‘greenwash’ – in which companies try to get credit for being environmentally friendly while taking little meaningful action.
‘It is a long-term project to change a company’s values,’ said Savitz. Oil giant BP, for example, had tried to emphasis its ecological concern by rebranding as Beyond Petroleum. This looked like mere posturing, however, after one of the company’s wells blew up in 2010, discharging around five million barrels of oil into the sea off the US coastline. ‘It was clearly not about going “Beyond Petroleum” on the rigs or refineries,’ said Savitz. ‘BP was a sign of how short-term thinking can hurt a company.’
But among the key problems with corporate responsibility is how to measure progress and assess financial gains to the company. ‘Quarterly profits are easy to measure,’ said Savitz. ‘You can’t put a number on culture.’
Yet a genuinely responsible culture can deliver solid – if hard to measure – gains, including in attracting and retaining staff. ‘Starbucks’ fair trade coffee initiative only directly involves a few hundred employees but it helps motivate hundreds of thousands of baristas,’ Savitz argued.
Another consideration is how quickly companies can expect a payback from their benevolence. Companies often have an incentive to start with changes that deliver clear and fast payoffs, such as using resources more efficiently. ‘Something as simple as turning off the lights saves money immediately and is good for the environment,’ said Savitz. A paper by Harvard business professor Michael Porter argued that chemical company Dupont had saved $2bn from cuts in energy use between 1990 and 2006. Fast-food company McDonald’s meanwhile had managed to cut its solid waste by 30% by changing the materials it uses to wrap its food.
Sadly, not all rewards from corporate social responsibility appear so quickly. ‘Often the payoffs are more diffuse and more uncertain,’ said Greene. ‘For actions that involve an upfront expense, the pay-off and the costs are frequently out of line.’ A poll taken during the ACCA USA panel meeting showed that only 8% of online listeners had enjoyed immediate results from responsibility initiatives. Roughly a third said that such gains had only become apparent after several years while another third said they had not yet seen any impact.
The most effective and durable programmes are ones that are integrated into a company’s core business strategy, participants agreed. ‘There is a distinction to be made between pure philanthropy, giving away resources with no real return to the business, and more focused plans,’ said Savitz. ‘These are about harnessing the power of capitalism for the benefit of a company and society. It is about figuring out ways of making money by being responsible.’
‘There is no off-the-shelf “good citizenship” strategy that fits all companies,’ said Dan Bross, senior director of corporate citizenship at Microsoft, which was recently voted the most ethical company in a survey of 100 leading businesses by the Reputation Institute. Bross said that Microsoft sought to play to the company’s strengths in devising its citizenship policy. One example is its YouthSpark initiative, launched in September 2012, which helps young people access technology and training.
The YouthSpark website points out that youth unemployment is more than double that of the adult population. Meanwhile there is a growing gap between those with computer skills and those without. The programme aims to provide help for such IT disenfranchised youths. ‘Microsoft’s citizenship programme also focuses on other issues in which the company has a particular stake, such as data security, freedom of expression and human rights,’ said Bross.
A similar tailored approach is followed by other leading companies. Apple donates computers to schools, boosting its reputation as well as introducing young people to its products. Film production company DreamWorks helps train high school and college students in the skills required in the entertainment industry. Meanwhile oil company Exxon Mobil helps fund road improvements in the poorer countries in which it operates, improving both its reputation and its access to resources.
Panellists also agreed that non-governmental organisations were playing an increasingly positive role in developing citizenship programmes. The likes of Greenpeace and Oxfam once had a mostly confrontational relationship with big businesses. ‘Increasingly these NGOs are partnering with companies to help ensure the effectiveness of their social responsibility programmes,’ said Shannon Schuyler, head of corporate responsibility at PwC. ‘There are new intersections between business and society.’ One example is Oxfam’s Poverty Footprint methodology, which helps companies understand and measure the effect of their operations on the countries in which they operate. The charity argues on its website that this can ‘highlight real opportunities for enlightened businesses to make a positive difference’.
There is also a high degree of self-interest in some of the issues companies focus on. Microsoft, for example, takes an interest in the development of transport systems in the major cities in which it operates. ‘We want to keep employees happy and part of that is making sure that they get to work easily,’ said Bross. Microsoft also tries to play a role in improving education – sending out members of staff as volunteer instructors in computer science. It hopes this will help alleviate the shortage of technology graduates, a serious challenge for the company.
In recent years the field of corporate social responsibility has started to mature, beyond mere public relations and a nebulous desire to seem virtuous. Respected business academics, including Michael Porter at Harvard University, have spoken about the advantages of corporate social responsibility for businesses. ‘There has been much more rigour brought to sustainability,’ said Savitz. ‘It is becoming a core part of business strategy.’
Christopher Alkan, journalist based in New York