Chapter 4: Reasons for acting: the business case
SNAPSHOT
In a comprehensive survey undertaken for this study only a small minority of responding companies believed corporate community investment to be peripheral to business and most sought to make investments with a business case in mind. It was seen by most to be ‘an integral component to strategy and the corporate business model’.
Rationales cited for corporate community investment included building a better society and promoting public benefit. This is consistent with the view that corporate community investment can enhance financial returns over the long term and facilitate the long-run sustainability of firms. Other motives
included winning and maintaining community trust and consequent ‘licence to operate’, and building and maintaining a positive reputation with a range of associated benefits.
Companies also have been strongly motivated by the demands of staff, particularly younger staff, to be involved in these activities.
Survey respondents agreed with a number of studies that suggest customers can be influenced to support companies with a strong record of CSR, including community investment.
Most respondents said companies were influenced to engage in community investment partly in order to broaden manager’s and employee’s perspectives and understanding of the community. Community investment initiatives were also a means to build relationships with key stakeholders including corporate critics.
Interviews with CEOs and other research demonstrated the role of corporate values and the way they were articulated and practically expressed in supporting CSR and positive activities in communities.
The US based Conference Board undertook a study into corporate social responsibility performance in late 2003. It cited two contemporary surveys on the significance of CSR to business decision makers:
In a recent survey of corporate executives and institutional investors
conducted by the Economist Intelligence Unit, 85 percent said that
corporate responsibility is a “central” or “important” consideration
in their business decisions, compared to 44 percent who said it was
“central” or “important” five years ago (Importance of Corporate
Responsibility, p.2). Another study of multinational executives found
that 46 percent believe CSR factors are “more influential” in business
decision-making than they were five years ago, and an additional 42
percent said CSR factors are “much more influential”. (Race to the
Top: Attracting and Enabling Global Sustainable Business, The World
Bank, 2003, p.3).20
The Conference Board points out that the NGO community has been pushing the business case for CSR over the last decade. But sceptics remain, including one observer in the newsletter Ethical Corporation:
Corporate responsibility remains short on credibility. In most
companies the official line is that “corporate responsibility provides
tangible commercial benefits”.
However, scratch the surface and one finds a high degree of cynicism
about corporate responsibility, and a widespread belief that it is a costly,
public relations-focused activity that adds little to the business.21
The Conference Board notes the view that the business case for good corporate citizenship is valid, but only if it helps achieve company goals.
In this view, a corporate citizenship program is most effective when it
is aligned with the firm’s basic business objectives and can therefore
be justified on business grounds.22
It quotes an earlier Conference Board report in support of this proposition:
Although the question “Does corporate citizenship pay?” is
technically right, it is misleading in practice. Rephrasing the core
question as “In what ways does corporate citizenship contribute
to achieving the core business strategy?” is far preferable. This
approach makes the strategy the starting point and corporate
citizenship the contributor, rather than seeking to present it as a
distinct profit center that subsequently seems isolated from the main
thrust of the business. 23
Peripheral or integral to strategy?
This project shows that most large Australian companies embrace corporate community investment as an integral part of business life.
This is indicated by responses to a number of questions in the survey (see Box 4.1).
Box 4.1: The survey
As part of the project reported here a survey was administered in the second half of 2006 to the top 150 listed Australian companies, the Australian operations of overseas companies of similar scale, and some large government business enterprises. Eighty-two responses were received, representing a 35% response rate. The survey responses were from the senior public affairs/corporate affairs executives or equivalent. Where the attitudes of CEOs/boards, and business unit/line managers are reported, responses were based on the perceptions of these specialist executives.
Companies were asked whether corporate community involvement was ‘peripheral to business’. Of respondent companies only 10% of CEOs and 7% of public affairs practitioners ‘agreed’ or ‘strongly agreed’ it was peripheral, while CEOs (49%) and practitioners (72%) were seen to ‘strongly disagree’ (see Figure 4.1).
Figure 4.1: Corporate community involvement is perpheral to business
Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006
There was some variance in the responses of business unit and line managers. Twenty per cent ‘agreed’ or ‘strongly agreed’ that corporate community involvement was peripheral to business, and only 22% ‘strongly disagreed’. These differences are of interest and the issue of line management engagement and perceptions is dealt with later in this report.
Respondents were also asked whether their company required some sort of business case for corporate community investment decisions. An overwhelming 93% said they did, which included 24% who required a specific business case with some return on investment justification; 69% said they required a broad business case with reference to intangibles, while only 7% said they required no business case (see Figure 4.2).
Figure 4.2: Business case for corporate community involvement decisions
Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006
This general position is confirmed by responses to a similar question about the use of resources. Companies were asked whether, in expending resources on community involvement activities, a focused (articulated) business case was required or at least assumed, or if the company sought a generalised benefit, no benefit or had a philanthropic motive only. As illustrated in Figure 4.3, 88% of companies claimed to seek a generalised benefit (44%) or required or assumed a focused business case (also 44%).
Figure 4.3: In expending resources on community involvement, does your company seek:
Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006
Companies were asked a series of questions about the relevance of community involvement to the company and particular motives companies had for these activities.
The reasons given for the relevance of corporate community involvement to the organisation were not mutually exclusive. Those postulated are often that corporate community involvement is:
- what you have to do to meet external expectations;
- an obligation of business as a citizen;
- worth doing for external reputation and other benefits; and
- an integral component of strategy and our business model.
The level of support for these propositions from various categories of management is reported in Figure 4.4.
Figure 4.4: Corporate community involvement is considered to be:
Note: ‘strongly agree’ and ‘agree’ responses have been combined, as have ‘strongly disagree’ and ‘disagree’.
Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006
Winning and maintaining a ‘licence to operate’ is commonly cited as a major rationale for corporate community investment. Respondents were asked what the three executive categories in their organisation thought of the proposition that corporate community involvement is ‘what you have to do to meet external expectations’. Only 49% of CEOs or boards ‘agreed’ or ‘strongly agreed’, as did 57% of line managers, and 59% of public affairs practitioners.
Companies in industries vulnerable to social and political pressures such as resources, banking and pharmaceuticals were more likely to agree with this proposition.
The study found an overwhelming response to the proposition that corporate community involvement was worth doing for ‘external reputation and other benefits’ (presumably grouped around the reputation and relationship issues). Ninety-three per cent of CEOs and boards, 81% of line managers and 93% of public affairs practitioners held that view.
The traditional view of corporate community involvement as ‘an obligation of business as a citizen’ is widely held. Ninety per cent of CEOs/boards, 75% of business unit/line managers and 87% of public affairs practitioners agreed with this view.
How embedded
A major issue for investigation is whether, and in what way, corporate community investment is ‘embedded’ in the business model of corporations. This can be explored in two dimensions. The first is the real nature of the business case – how and why companies invest in community. The second, examined in greater detail in chapter 6, is the locale and nature of relevant decision making.
The degree to which community investment is embedded in strategic planning and operations is important for a number of reasons. One is that by its consequent presence in the minds of managers, community investment is likely to affect more potential beneficiaries, and be more consistent with other aspects of management and CSR. Most importantly, it is more sustainable than a peripheral or ‘bolt on’ approach during times when profits are under pressure.
Our community involvement strategy is directly aligned to our
business imperative.
As a recycling company, we run a major program to collect waste
via community groups and deliver linked and readily measurable
financial support back into those communities.
[Our organisation] expects closer alignment to corporate values and
goals — more synergy between sponsor and product.
We are trending towards a more direct relationship between
community involvement and the aims of the business. This will
ensure good take up from business when there is a win win for
the organisation and the community.
Public affairs practitioners
Survey respondents were asked if their CEO or board considered corporate community involvement to be ‘an integral component of strategy and the corporate business model’: 75% agreed and 8% disagreed (only 1% strongly). Public affairs practitioners were even more inclined to believe this statement (92% agreeing and only 1% disagreeing). Again, business unit and other line managers were less inclined to agree. Nevertheless, 65% did support the proposition, and 19% disagreed. 24
While not extreme, the differences between line managers and CEOs and public affairs practitioners is significant. It can be explained in part because CEOs and public affairs practitioners are often closer to social and political stakeholders and have well defined accountabilities in that area. It may also be partly explained by the corporate pressures and incentive systems imposed on operations management, despite statements of corporate philosophy and the longer-run interests of companies. Some companies are now addressing this by ensuring relationships with communities and other stakeholders feature in key executive performance indicators and form part of remuneration at risk.
Since our last report, Harvard Professor Michael Porter joined a number of US academics in focusing on CSR as a key driver of business activity. He has attempted to fit this into his well known strategy model. In his most recent article he drew attention to the limitations of some of the classic rationales for CSR, namely moral obligation, sustainability, licence to operate and reputation (see Box 4.2).
There are strong elements of ‘straw man’ arguments in his negative response to the drivers of CSR he has identified, and (at least in relation to the large corporate sector in Australia) in the characterisation of prevailing approaches, which justify the need for a ‘new way’.
This ‘new way’ is the strategic integration of business needs and society’s needs on the basis of shared values and embedded business practice. It represents the approach of a number of best practice companies in Australia in recent years. One classic example is the Insurance Australia Group whose community investment programs are aimed at benefiting the community but address areas of highest claims cost, such as road safety, neighbourhood crime and workplace safety. As IAG stated in its submission to the Parliamentary Joint Committee Inquiry:
One of the greatest benefits IAG can provide to our customers and
the broader community is to identify the very risks being insured and
help to reduce them…
…success in owning and driving a corporate responsibility agenda
lies in the effort that the company makes in exploring, debating
and deciding how best it can integrate these considerations into its
purpose and operations.
Another example of the new approach comes from health insurance company MBF which integrates the objective of containing cost pressures on the industry while working in the community on health issues such as childhood obesity and chronic disease management.
Box 4.2: Michael Porter on CSR
In the Harvard Business Review (December 2006), Michael Porter and Mark Kramer place CSR in the framework of competitive advantage. Porter presented these conclusions to a large business audience at a conference cosponsored by AIM and the Community Business Partnership in Sydney that month. At the outset he alleged prevailing approaches were fragmented and disconnected from business and strategy, but asserted CSR ‘can be a source of opportunity, innovation and competitive advantage’. He proposed ‘a new way to look at the relationship between business and society that does not treat corporate success and social welfare as a zero sum game’.
Porter suggests that four classical arguments are being made to support CSR:
- Moral obligation. He claims it is in the nature of moral obligations to be absolute mandates, while most corporate choices involve balancing competing values, interests and costs. “The moral calculus needed to weigh one social benefit against another, or against its financial costs, has yet to be developed.”
- Sustainability, which appeals to enlightened self-interest but which, he asserts, does not provide a viable framework for balancing long-term objectives against the short-term costs they increase.
- Licence to operate. By seeking to satisfy stakeholders, Porter claims companies cede primary control of their CSR agendas to outsiders. “A firm that views CSR as a way to placate pressure groups often finds that its approach devolves into a series of short-term defensive actions. This is a never-ending public relations palliative with minimal value to society and no strategic benefit for the business.”
- Reputation. Porter suggests that the business benefit of reputation is hard to determine. ‘Studies of the effect of a company’s social reputation on consumer purchasing preferences or on stockmarket performance have been inconclusive at best. As for the concept of CSR as insurance, the connection between the good deeds and consumer attitudes is so indirect as to be impossible to measure.’
Source: Porter M. and Kramer, M., 2006, ‘The link between competitive advantage and corporate social responsibility’, Harvard Business Review, December 2006, pp.78–92.
Rationales for community investment
As noted, above many managers only seek or assume generalised benefits or a broad business case based on intangibles. Others have clear and well articulated purposes.
The following discussion deals with clusters of these motives derived from the survey as well as from interviews with public affairs practitioners, CEOs, and from the extensive consulting and other research experience of the Centre for Corporate Public Affairs.
We now examine in more detail the reasons Australian companies give to explain their engagement in corporate community investment. Respondents were asked about a number of possible motives for engagement in community involvement programs or activities.
For most there are a combination of perceived benefits including a number of those identified for response in the survey.
Figure 4.5 documents levels of agreement or strong agreement with these propositions, which are not, of course, mutually exclusive. Improving reputation, community trust and support, long-term sustainability of business, and employee engagement are the top four reasons for engaging in community involvement programs.
Figure 4.5: Percentage of companies’ overall corporate community involvement programs/activities
Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006
Building a better society
Broadly consistent with the view identified in Figure 4.2 in which 90% of CEOs said community involvement was ‘an obligation of business as citizen’, 80% of companies surveyed said their programs and activities were motivated (at least in part) by the achievement of public common good (see Figure 4.6).
Figure 4.6: Programs are designed to promote public common good
Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006
The majority of CEOs interviewed were also quick to identify the public good as one motive for action, but couched it as ‘the right thing to do’, or ‘giving back to the community’ in return for community support. Others used the metaphor of citizenship which, as noted, is a common rationale in the United States. The citizenship metaphor captures the notion of having a stake in society with obligations or duties as well as privileges, and can be aligned with ethics and behaviours expected more generally of people living in a community.
Some companies refer to the obligations to contribute to, or the benefits that can be derived from, enhanced social capital. This concept, advanced initially by Robert Putnam 25, relates to ‘the collective value of all “social networks” and the inclinations that arise from these networks to do things for each other’ (see Box 4.3). In its social reports, one of Westpac’s performance indicators is ‘building social capital’.
We recognise our obligation to conduct our business in a way that
contributes to building social capital.
For us, building social capital starts with business basics and dealing
with the substantive issues, finding correctives for broad based
community concerns and being deeply involved in the community. It’s
not only good for the overall community, it enhances community trust
in us and it’s good for our business.
2002 Westpac Social Impact Report
My belief is that profits and social responsibilities need not be in
conflict. In fact there is no denying that companies with strong
positive reputations are typically financially successful ones. And
the more bridges corporations build back into the community by
taking responsibility for building social capital, the stronger the
nation will become.
David Morgan, CEO, quoted in Westpac’s Social Impact Report, July 2002
Box 4.3: Social capital
Social Capital: the stock of shared meaning and trust in a given community. Social capital is a prerequisite to cooperation and organised human behaviour, including business. Social capital can be transformed, consumed or replenished, just as financial capital.
Source: Commission of the European Communities: Green Paper: Promoting a European Framework
for Corporate Social Responsibility, Brussels, 2001.
Rio Tinto Coal refers to its strategic community partnerships that help ‘to build social capital in the communities in which Rio Tinto Coal Australia operates’. 26
Moral obligation permeates stakeholder theory as managers are asked to pursue multiple interests including the interest of the community as a whole. There is also a strong component of moral obligation in the statements of values, and in the stated aspiration of so-called ‘values driven enterprises’ discussed below.
Financial return and sustainability
A US Government report dated August 2005 stated:
Despite over thirty years of research, no consensus has been
reached on the relationship between business social and financial
performance. Numerous empirical research studies have attempted
to determine whether those firms that engage in socially responsible
practices also do well in terms of financial performance. 27
It notes with approval the findings of a 2002 paper by the UK Association of Chartered Certified Accountants:
It has not yet been possible to make a strong causal, quantitative
link between CSR actions and financial indicators such as share price,
stock-market value, return on assets and economic value added. 28
Notwithstanding this, companies are acting as if there are positive returns when it comes to corporate community investment.
When a business rationale is invoked, it is common to see reference to the idea that healthy or prosperous businesses thrive only in healthy or prosperous communities. Accordingly, enriching the community is a form of collective enlightened self interest. Several CEOs repeated in interviews the common view that business prospered in a successful social environment. (To quote The Economist’s well known dictum, ‘a healthy high street depends on healthy backstreets’.) 29 This is a rationale, however, where the relationship between cause and effect is intangible at best. But it is adhered to strongly in some quarters:
To implement Bendigo Bank’s chosen strategy, and to ensure that
CSR outcomes are a natural outcome of successfully implementing
the strategy, we have had to develop some different business models
and approaches to this subject. We feel the [community] investments
made are enabling us to produce much improved outcomes for all
stakeholders, while still providing an excellent platform for continuing
the creation of shareholder value on a more sustainable basis.
Because of the strong commercial base to the model, we are
confident it not only generates a sustainable solution but also
provides a strong source of local revenue — revenue that then can
be leveraged, match funded, or directed to substantial community
projects, with the resultant multiplier benefit to the local economies.
Rob Hunt, Managing Director, Bendigo Bank, 2006
A number of companies interviewed were able to illustrate in practical terms how lateral approaches with the community paid off. One CEO from the electricity retail sector said:
Our first approach to bad debts was to disconnect. However we developed
an emergency assistance program whereby in case of particular need
we would send people in to educate about consumption, restructure
payments, even help them with equipment purchases. We found the
program was not only good for our relationships but easily paid for itself.
CEO interview
Bridging the digital divide is strongly in the long-term interests of our
business as the majority of our products are internet and technology
based. The more people using technology, the bigger our consumer
base in the long term.
Public affairs practitioner
Not surprisingly, only 5% of survey respondents cited short-term financial return as a motive for community involvement (cause-related marketing may have been a factor in even reaching 5%). However, 86% said ‘the long-term sustainability of the business’ (implying long-term financial returns) was a motive for community activities. Long-term sustainability sat just after ‘reputation’ and ‘community trust and support’ as the highest scoring motives for community investment and just ahead of employee engagement. The survey results and issues raised in CEO interviews show that interest in broad sustainability, is at the forefront of thinking and that corporate community investment is a key element in this.
A number of CEOs interviewed felt that ‘short-termism’ in the current corporate financial environment, and driven particularly by institutional investors, mitigated against not only constructive community engagement, but also the long-term sustainability of the enterprise. Some, however, felt that the rise of socially responsible investment funds would have an impact and were relevant to their capacity to access investment capital. These funds have a greater share of total investment capital in the USA than in Australia, although they are growing in scale and complexity. Companies that seek overseas investment capital are more sensitive to these funds and an increasing number of Australian companies are now actively seeking endorsement from indexes like the FTSE4Good and the Dow Sustainability Index. As noted earlier, direct corporate community investment is however, only a minor consideration when companies are judged within social responsibility investment frameworks.
A narrow focus on financial return in the short-term is seen by many to mitigate community investment. This was a major consideration in an interview with one of Australia’s most successful CEOs, and is a central feature of his public statements on the issue.
There are traders who buy and sell our stock on short-term returns and
stock price; but I don’t see them as real shareholders. The interests of
long-term shareholders is sustainable high performance over time and
a focus on short-term performance can damage that. Building superior
long-term value requires advancing the interests of all our stakeholders
including the community… Building trust is necessary for successful
longevity… Winning companies focus not only on what they can gain from
success, but on how they can contribute.
John McFarlane, Chief Executive Officer, ANZ Bank
Licence to operate
The issue of trust is embedded in several of the reasons given for corporate community investment including the much-touted ‘licence to operate’. This is a construct in which the community permits or enables an enterprise activity, or withdraws its permission.
The broader issues of corporate social responsibility, including the environmental footprint and the way a company does business, have the greatest focus examining licence to operate, but corporate community investment is frequently a key component, particularly when identifiable local communities are linked to and affected by a company.
All giving and engagement programs are designed to engage specific
groups which the business need to have on side [such as] employees,
investors, community and key influencers.
[We focus on] environmental support to demonstrate company caring
for its community and its environment.
A variety of our community activities [are] linked to protection and
enhancement of reputation, and permission to operate etc. Plus [we look
at] specific audience segmentation relevant to [our] customer base.
Public affairs practitioners
Figure 4.7 shows survey responses to questions most directly relevant to ‘licence to operate’. Winning community trust and support was perceived to be a very important motivator for community involvement (for 92% of companies), as was winning that support from government and gaining regulatory approvals or similar regulatory benefits (according to 64% of companies).
Figure 4.7: Motives for conducting corporate community involvement/programs
Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006
It is interesting to note that in a major study of corporate community investment in Asia, corporate contributions to community activity and support was seen as a key issue in market access.30 Government attitudes and preferences are much more critical to success in market entry in most Asian countries than in the West and multinational companies are seeking to align host government interests with corporate interests through community investment. The direction of corporate activity was overwhelmingly focused on areas of host government priority.
Many partnerships are with government agencies, or non-profit organisations close to government, such as communist community organisations in China and Vietnam.
It is common in management circles to see corporate social investment as building credits in some favour bank. The proposition is that, if adequate, credits can be drawn down to balance any negative behaviour or poorly managed problem.
It is true that a positive reputation can give a company the benefit of the doubt and greater acceptance in ambiguous circumstances than less well regarded companies. But companies, including a number of the CEOs interviewed, realised that alleged credits in some favour bank may not always be useful when companies were in trouble.
As the CEO of Shell Australia, Russell Caplan said:
Doing good works doesn’t provide you with insurance; it doesn’t give
you a single degree of protection from a Brent Spar.
CEO interview
Licence to operate requires companies to maintain legitimacy
with key publics and respond to community’s expectations. Issue
management theorists point out that these expectations may be
unrealistic or, at least from a company perspective, poorly conceived.
In these situations an appropriate course of action for a company
or industry is dialogue and persuasion to attempt to modify those
expectations. But the issue is more complex. As commentators
Henderson and Porter point out (and as noted earlier in this
report) many demands are motivated by single issue causes, or
anti-business agendas, and in any event are frequently mutually
exclusive. Prominent academic David Baron argues that CSR must
be more than ‘a label for some practice and interest group seeks
or researcher desires… Often, however, interests conflict with some
seeking redistribution at the expense of others. Thus rather than
speak of society’s expectations it is better to speak of the interests of
individuals and groups.’ 31
Reputation
Closely related to the issue of trust and licence to operate is the amorphous concept of corporate reputation. Corporate reputation is multi-faceted and has become an increasingly important pursuit for managers.
Dr Charles Fombrun, founder of the US based Reputation Institute provides the framework for analysis which is most widely used in current discussion. It includes a number of dimensions of reputation including financial performance and the quality of products. Those dimensions of most direct relevance to corporate community involvement include workplace environment, (a good place to work), emotional appeal (trust, respect) and social responsibility (supports good causes and environmental and community responsibility).
There is also the potential for enhanced perceptions of vision and leadership for companies that are creative in community investment.
Academics and others are pushing hard to find ways of measuring the value of reputation (as others attempt to measure the value of brands). There is a growing awareness of the alignment between reputation and overall corporate performance. High reputation companies appear to command a significant premium in the price of goods and services, and equity.
Figure 4.8: Key dimensions of reputation
Source: Dr Charles Fombrun, The Reputation Institute
The current preoccupation of many companies with the notion of reputation, or reputation rankings and awards, is a testimony to the perceived value of reputation. While corporate social responsibility plays a major role in assessments of reputation, corporate community investment can also be an important factor. Accordingly, it features strongly when companies seek to enhance their reputations.
Companies compete to be the:
- employer of choice, to attract the best talent;
- supplier of choice, whose products and services are sought above others;
- investment of choice, including for socially responsible investment;
- business partner of choice, where there is trust and reflected reputational benefits;
- neighbour of choice, trusted and valued in the community; and
- oured by regulators.
The behaviour of companies supports the proposition that reputation, including community investment, is a competitive weapon, particularly in some sectors. The banking and insurance industries provide a good example: to overcome a past negative image companies are competing to demonstrate good citizenship, even by taking comparison advertising.
Given the perceived significance of reputation, the survey of companies for this project sought to assess the significance of different stakeholder groups as a target for recognition of community investment.
Figure 4.9 measures how important companies felt it was to have their initiatives recognised by stakeholder groups. Employees top this list, with 71% of survey respondents claiming it was ‘very important’ and 25% indicating that it was ‘important’ to have this group of stakeholders recognise their initiatives.
Figure 4.9: How important is it for the following stakeholders to recognise your corporate community involvement initiatives?
Note — other responses included ‘Not important’, ‘Slightly important’ and ‘Somewhat important’
Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006
Earlier in this report, Figure 4.5 clearly demonstrated reputation as a driver of community investment. Reputation was listed by an overwhelming majority as a motive for community investment, ahead of any single factor. Ninety-three percent of companies claimed reputation was a motive. Long-term sustainability of the business and employee engagement was the next most commonly mentioned.
There are some dangers in too overtly pursuing community investment for reputational gain. There are significant risks to overall performance when companies bias their activities to meet performance criteria established by reputation surveys. And activists who trade on a negative image of business are keen to focus attacks on companies that are making high profile moral claims.
As Vogel comments:
…a public embrace of corporate virtue is not without risks. The more
a corporation trumpets its social or environmental commitment, the
more vulnerable it is to challenges by activists when its behavior fails
to meet their expectations. 32
Employee engagement
The 1999–2000 study that preceded this report noted the emergence of staff as a key driver of corporate social responsibility, including corporate community investment. The trend has strengthened in the half decade that followed, to the extent that a number of executives now see staff as the dominant driver. Eightysix percent of companies surveyed felt it was an important factor, 42% strongly agreed and 3% disagreed.
Figure 4.10: Programs are designed to promote employee engagement
Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006
Almost all CEOs interviewed raised, unprompted, the demands of young people in the firm to be comfortable with CSR, with many seeking to express their personal altruism through the workplace. Indeed the common story, particularly in the tight labour market and competition for talent, is that beyond applicants for employment having to demonstrate their value, recruiters are being queried about the organisation’s community support policies and activities.
CEOs believed opportunities for volunteering, matched giving to worthy causes and approval of a company’s overall approach were important factors in recruiting and retaining talented staff.
Box 4.4: Generation Y
Generation Y is defined as the cohort born between 1978 and 1994, comprising around 4.5 million people in Australia. While they are considered more difficult to manage (ie, sceptical and impatient) in the workforce, they are also characterised passionate, trendsetting, ambitious and technologically-savvy. They are more inclined to be ‘choosy’ about who they work for and will want to check whether corporate values fit in with their own values.
In the US, Generation Y is seen as much more engaged and involved in areas such as volunteering. According to the Boston Globe:
We are entering the age of volunteerism. Generation X has shifted
charity from the hierarchical, corporate-backed Red Cross and
United Way, to a grassroots, episodic volunteerism of, say, tutoring
neighbourhood children. And Generation Y is donating more of its
time to charitable causes than perhaps any generation in history:
According to Leslie Lenkowsky, a professor at The Centre on
Philanthropy at Indiana University, 90 percent of college-bound high
school students volunteer. Young people are determined to make a
difference; they accept a mission that is close to the heart and take
action when they can get their arms around the whole project. These
attitudes affect choice of both charity and career, and increasingly
the two overlap in ways that dignify the word ‘synergy’.
Penelope Trunk, ‘Grassroots volunteering draws younger people’, The Boston Globe, 29 May 2005
Volunteering provides Generation Y with responsibility and a focus to make a difference. In Australia, the Bureau of Statistics estimates that just less than a third of Generation Y (aged 18–24) are involved in some volunteering work. An understanding of what driver the behaviour of Generation Y will assist companies to better attract, manage and engage this new workforce.
Source: Peter Sheahan blog, author of ‘Generation Y: Thriving (and Surviving) with Generation Y at Work’ (Hardie Grant Books, 2005)
A 2003 survey by researchers at Stanford University and University of California (Santa Barbara) found that of 800 MBA students from eleven leading North American and European business schools surveyed, 94% would accept a lower salary to work for a socially responsible company, one which cared about its employees, community and the environment. 33
Customer loyalty
The Year 2000 Millennium Poll and a more recent study by GlobeScan (conducted in twenty-one countries in 2005) suggests that that the Australian public has high expectations of corporate behaviour and will take action against those companies that do not live up to these expectations.
The GlobeScan 2005 survey showed that Australia was the only one of the twenty-one countries surveyed that has a majority of citizens reporting they have punished a company that was seen as socially irresponsible over the past year.
Figure 4.11 : Have punished companies who are seen as socially irresponsible in the last year…
Source: GlobeScan, annual Australian CSR Monitor, 2005
This, however, is likely to relate to the whole gamut of perceived corporate social responsibility, rather than just community investment.
The concept of social responsibility and the expectations of communities varies from country to country. In the Millennium Poll, the citizen expectation’s of companies to go beyond making profits to building a better society were higher in Australia than in any other country (see Figure 4.12).
Figure 4.12 : Role of large companies in society
Source: The Millennium Poll on Corporate Social Responsibility: Environomics International Ltd (now GlobeScan) in conjunction with the Prince of Wales Business Leaders Forum and The Conference Board, 1999.
Cause-related marketing has been a form of community investment, in some sectors more than others. While consumers have indicated in a number of studies that they more likely to buy products from companies that support a particular cause, only 23% of respondents said their companies were involved in causerelated marketing.
As discussed above, a number of community involvement sponsorships, particularly in sport and the arts, provide an opportunity for customer relationship building, particularly in the B2B sector.
We should note the subtle continuum from brand building corporate or product sponsorship of community activities, through to less marketing-focused community investment. Calls on the corporate donations dollar (for example to State government arts festivals) might best be regarded as a cost of sale for government business or in return for some political support.
In many community investments, apart from cause-related marketing, it is impossible to disaggregate the marketing and community support drivers.
[We have a] strong fit between brand values of the product, and the brand values of the community program.
Public affairs practitioner
This should not be decried; basic commercial drivers will underpin and help the sustainability of the programs of community support.
In addition, as we will see in Chapter 5, companies have embedded community investment into core business activities related to winning and maintaining customers, and enabling customers to access their services. This includes showcasing brands in community activities, technology enabling (for technical service and finance companies), and investing in issues like road safety and public security (for insurance companies).
Customer loyalty was seen as only a moderate driver for corporate community involvement with around 50% agreeing that was a driver in their community programs and 21% disagreeing.
Figure 4.13 : Programs are designed to support customer loyalty
Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006
Engaging key stakeholders
A number of community investment programs provide opportunities for hosting important stakeholders, including sponsorship of the arts. When hosting customers or suppliers this can be seen as a commercial investment and when it provides access to socio-political or interest groups, it can be seen as an opportunity relating to licence to operate.
Around the mid-1990s a strong new trend emerged to engage stakeholders outside business in order to build stronger relationships of trust and collaboration.
This occurred at a time when companies were realising that to run a zero sum political game with corporate critics was not always smart. Companies sought collaboration, when reasonably achievable, with NGOs and activist organisations. At the same time a number of activists came to the view they could often best achieve their objectives by working with, not always against, companies.
This approach by corporations was re-enforced by an appreciation that unfair attack and negative stereotyping was harder when there was some acquaintance or personal contact (precisely the reason some of the most strident corporate critics eschew such personal contact and collaboration). Accordingly, companies used sponsorship and community involvement resources to develop relations with corporate critics and stakeholders with influence over the corporate environment, and to work collaboratively with NGOs, non-profit organisations and community leaders.
We went out deliberately to engage them [activist NGO] because we
thought by working with them they would understand our situation
better. But we had to demonstrate openness and our bona fides
concerning the issues.
CEO interview
Engaging non-profits and other stakeholders usually occurred in areas in which common cause, rather than conflict, could be found, and was one of the drivers of the partnership approach that is discussed more fully below.
As noted by Kramer and Kania:
However interdependent the nonprofit and business sectors may
become, the economic motivations of business will never align
perfectly with the altruistic mission of nonprofits. Companies may
find many advantages in meeting the needs of the underserved or
abating environmental harms, but there will always be social and
environmental problems that run contrary to business interests. That is
why the nonprofit sector can never be replaced by the business sector.
On those social issues where companies have reason to be involved,
whether they are motivated by reputation or profit, substantially
greater progress can be made if nonprofits can find effective ways of
engaging them in cross-sector partnerships. By embracing a new and
positive perspective on business’ involvement, nonprofits can tap
into a wealth of resources that have long been beyond their reach. 34
Broadening management and staff perspectives
Beyond establishing more trusted relationships, a common motive for active engagement with external organisations, identified in interviews and confirmed in the survey, was to broaden corporate perspectives.
While there was a neutral response to the survey question relating to ‘broadening of management perspective’ as a motivator for community involvement, more than half of the respondents felt it was a factor, and 8% felt this strongly (see Figure 4.14).
Figure 4.14: Programs are designed to support broadening of management
perspective
Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006
A number of CEOs volunteered this as an important factor, and one reason for their commitment to staff engagement in community investment activities. Many companies appear to be encouraging their staff, including top management, to take positions of responsibility in the community and indeed were demonstrating this to staff by direct CEO engagement in, for example, non-profit organisation governance. The purpose is to gain insight into a world outside the company, and to establish a broader range of relationships.
The general rationale is that exposure to the outside world, including areas of disadvantage, will be developmental for individuals and will help to develop more effective executive and general staff behaviours.
As the 2006 document ‘Accenture Corporate Citizenship’ states:
As one element of our overall corporate citizenship philosophy,
corporate community involvement programs create opportunities
that enrich the lives of our own people as well as those who benefit
from their activities across the world.
Surprising researchers here and overseas was the serendipitous discovery of
new business opportunities arising from exposure to the broader community.
This has included opportunities in micro-finance for underprivileged individuals
or potential entrepreneurs, and new product ideas in packaging, energy and
other areas of environmental management that emerge from engagement with
environmental organisations.
Two examples in Asia demonstrate the business value of Unilever supporting
entrepreneurship as a form of aid, and the long-run link between aid and brand/
market development (see Box 4.5).
Box 4.5: Unilever in Asia
Entrepreneurs and distributors in Indonesia
Unilever in Indonesia sells soaps, soy sauce, ice-cream and mosquito coils to consumers, more than half of whom live on less than two dollars a day. Among the poorest and least powerful people in the company’s value chain are small farmers. To assist with poverty alleviation as well as reinforce supply, the company worked with an Indonesian university and the Dutch company Rabobank to provide credit and improve quality. On the distribution side, the company built supportive relationships with individuals and families in the community to establish small shops, kiosks and ‘warung’ that operate from family homes, and to assist street hawkers, all of whom were better able to distribute Unilever products.
Brand and marketing
Unilever has been innovative in associating its Lifebuoy soap brand with major health needs in Bangladesh. The product itself is associated as much as possible with improving health of underprivileged people (‘clean hands stop the spread of germs and clean skin helps prevent diseases’). The company joined local humanitarian organization, Friendship Association, in a major program the company calls ‘cause-related marketing’ to bring health services to difficult-to-access and underprivileged parts of the country via its system of rivers and canals. It refitted an old oil tanker as a floating ‘Lifebuoy Friendship Hospital’ (decked out in Lifebuoy livery) to provide free treatment and medicine, immunisation, basic dentistry, public health and hygiene education, and so on. It also hands out free samples of Unilever products.
Source: ‘Globalisation’s strange bedfellows’, Financial Times, 8 December, 2005, p.14.
Writing in The Economist, Ian Davis, Worldwide Managing Director of McKinsey & Company, notes the risk of lost opportunities of a short-term profit orientation:
…billions of dollars of shareholder value have been put at stake as a
result of social issues that ultimately feed into the fundamental drivers
of corporate performance. In many instances, a “business of business
is business” outlook has blinded companies to outcomes, or to shifts
in the implicit social contract, that often could have been anticipated.
Just as important, these outcomes have not just posed risks to
companies but also generated value creation opportunities: in the
case of the pharmaceutical sector, for example, the growing market for
generic drugs; in the case of fast-food restaurants, providing healthier
meals; and in the case of the energy industry, meeting fast-growing
demand (as well as regulatory pressure) for cleaner fuels such as
natural gas. Social pressures often indicate the existence of unmet
social needs or consumer preferences. Businesses can gain advantage
by spotting and supplying these before their competitors do. 35
Proximity, dialogue and partnerships with organisations with these interests, and communities with specific needs, are important means to identifying these opportunities.
Values as a driver
One CEO interviewed said that being involved in the community and supporting business activity was ‘just the way we do business here’. Many companies now refer to themselves as ‘values driven organisations’, meaning they have articulated core values, embedded them within the organisation, and are using them to drive and reinforce behaviours that benefit the company and its stakeholders.
Discussion with CEOs and public affairs executives on corporate community investment frequently turns to the issue of values, and what some refer to as principles-based organisations. In a speech on corporate responsibility one CEO put the issue succinctly:
Leading an organisation based on principles generally results in
one that makes a lasting contribution. It requires a strong ethical
and moral foundation that strikes at the heart of what we are trying
to create, and inspires people to do the right thing. Running an
organisation by rules generally leads to a company that operates at
the boundary of what is tolerable. 36
The worldwide CEO of IBM, Sam Palmisano, told Harvard Business Review:
You have to empower people while ensuring that they’re making the
right calls the right way. And by ‘right’ I’m not talking about ethics
and legal compliance alone; those are table stakes. I’m talking about
decisions that support and give lift to IBM’s strategy and brand,
decisions that shape a culture. That’s why values for us aren’t soft.
They’re the basis of what we do, our mission as a company. They’re
touchstone for decentralized decision-making. 37
Some companies place corporate citizenship front and centre; the first item of McDonald’s statement, ‘Our Core Values’, has as its first item:
We give back to the communities in which we do business. We
are a local business. We must be leaders in social responsibility.
Our customers view us by the positive influence we have on the
neighbourhood, its people, and the environment. 37
A Booz Allen Hamilton/Aspen Institute survey of 365 companies in thirty countries suggests that: ‘Increasingly, companies around the world have adopted formal statements of corporate values, and senior executives now routinely identify ethical behaviour, honesty, integrity and social concerns as top issues on their companies’ agendas’. 38
The study identified values most commonly included in corporate values statements and found that the most common were very commercially focused (see Figure 4.15).
Figure 4.15 : Values most commonly included in corporate values statements
Source: Booz Allen Hamilton/Aspen study
The value, ‘social responsibility/corporate citizenship’ was cited by 65% of responding companies. It is interesting that specific values that were deemed most critical in areas most closely related to corporate community investment such as reputation and relationships (see Figure 4.16).
Figure 4.16 : Factors important to business strategy and strongly affected by values
Source: Booz Allen Hamilton/Aspen study
This survey highlights the growing trend of companies to make their values explicit, a significant change from corporate practices ten years ago (89% of surveyed companies have written corporate values statements). While some of this may be due to corporate scandals that have resulted in companies looking inwards to find out what went wrong, the authors of the survey suggest that the commitment to corporate values is much deeper. Companies are now doing much more than just displaying value statements. They are undertaking values-driven management improvement activities, such as training staff in values, including values in management and staff appraisal, and engaging consultants to better understand how values affect corporate performance. Various studies show strongly the most effective means of reinforcing corporate values is explicit CEO support. The tone set and values lived by chief executives is the dominant determinant of a corporation’s values — this is confirmed in the Booz Allen survey. Other contributing factors include values statements, performance appraisals, internal communications and training. Although according to Booz Allen Hamilton and Aspen Institute study, these factors are not effective if not supported by CEO leadership.
Values driven organisations encourage employees to ‘live the company values’ in their day-to-day behaviour. As Goldsmith 39 argues, too often values statements become an ‘obsession with words’. He suggests that Enron is a good example of the disconnect between the corporate values and behaviour of leaders. By comparison, Goldsmith points to the Johnson & Johnson Credo established in the 1940s as an example of a company in which management take values seriously and executives are consistently challenged to understand and live the corporate values.
Shell is another example of a values driven organisation. Its global principles govern how Shell companies in each country will conduct its affairs. In its statement ‘Shell’s Business Principles’ it states its values, lists its responsibilities to its stakeholders, and identifies eight business principles including:
Principle 6 — Local Communities
Shell companies aim to be good neighbours by continuously
improving the ways in which we contribute directly or indirectly to
the general wellbeing of the communities within which we work.
We manage the social impacts of our business activities carefully and
work with others to enhance the benefits to local communities, and
to mitigate any negative impacts from our activities. In addition, Shell
companies take a constructive interest in societal matters, directly or
indirectly related to our business.
- The Conference Board, The Measure of Success; Evaluating Corporate Citizenship Performance, NY, 2003.
- Peter Davis, “Comment: The Last Word”, in Ethical Corporation, 9 February 2005.
- The Conference Board, op cit, p.11.
- Simon Zadek, Doing Good and Doing Well: Making the Business Case for Corporate Citizenship, Research Report 1282, The Conference Board, 2000, p.22.'
- It is also relevant to note that there may be some ‘halo effect’ in responses to these questions. The respondents are public affairs practitioners responsible for administering, and in many cases initiating, their company’s communityinvolvement activities. As a generalisation they (with many CEOs) will be more in tune with the costs and benefit associated with relative performance than other executives. In addition, in relation to whether or not the activities are peripheral or embedded in the business model, they see their own function as strategic and aspire to it being recognised as an important factor in business success.
- In 1995, Putnam discussed social capital in his article ‘Bowling Alone: America’s Declining Social Capital’ (Journal of Democracy) which was later expanded and published as a book (Bowling Alone: The Collapse and Revival of American Community, 2000, Simon & Schuster, New York).
- Rio Tinto sustainability, http://www.riotintocoalaustralia.com.au/
- US Government Accountability Office, Report to Congressional Requesters, “Globalisation: Numerous Federal Activities Complement US Business’s Global Corporate Social Responsibility Efforts”, Washington, August 2005.
- Association of Chartered Certified Accountants, “Corporate Social Responsibility: Making a Business Case”, London 2002.
- The Economist, 20 February 1982
- Proprietary study by the Allen Consulting Group of the role of corporate community investment in market entry strategies in Asia for seven major multinational companies, 2003.
- Baron, David P, “Private Politics, Corporate Social Responsibility and Integrated Strategy”, Research Paper No. 1656,
Research Paper Series, Graduate School of Business, Stanford University.
- Review of book, D Vogel, The Low Value of Virtue: The Potential Limits of Corporate Social Responsibility, Brooking
2005, in Harvard Business Review, June, 2005.
- Weber, G, “The Recruitment Payoff of Social Responsibility”, Workforce Management Magazine, March 2005, quoted in Boston College Centre for Corporate Citizenship In Focus, 6 May 2005.
- M Kramer and J Kania, “Changing the Game. Leading Corporations Switch from Defense to Offense in Solving Global Problems”, Stanford Social Innovation Review, Spring 2006.
- Ian Davis, “The Biggest Contract”, The Economist, London, 26 May 2005.
- John McFarlane, Speech to Asia Business Council 2006 Autumn Meeting, Seoul, September 2006.
- HBR Interview, Harvard Business Review, December 2004, cited in Rochlin, SA, Googins, BK, ‘The Value Proposition for Corporate Citizenship’, A Centre for Corporate Citizenship at Boston College Monograph, 2005.
- Van Lee, R., Fabish, L. and McGaw, N. 2005, ‘The Value of Corporate Values’, Strategy + Business, Issue 39
- Goldsmith, M. 2005, ‘Leaders Make Values Visible’, In Van Lee, R., Fabish, L. and McGaw, N. 2005, ‘The Value of Corporate Values’, Strategy + Business, Issue 39.