Phil Mirvis, academic and CSR management consultant, analyzes how leading companies shape their corporate citizenship strategy by relating and responding to society: understanding risks and opportunities, mapping "hot" social issues, engaging stakeholders.

Wal-Mart spent a year talking with environmental and consumer experts before launching its new strategy on sustainability. Shell prepares and plans from scenarios on how different developments in society might impinge on their markets, offerings, and license-to-operate.  IBM conducts electronic “jams” on broad trends and business-relevant sociopolitical issues with thousands of people and key stakeholder groups around the globe. GE convenes biennial “Energy 2015” and “Healthcare 2015” meetings with a cross-functional group of government officials, industry leaders, key suppliers, NGOs, and academics that feed back into the company’s strategy.

What’s this all about?—gathering intelligence on social, political, cultural, and environmental issues that bear on the business. Once consigned to the public affairs function in companies and consumed as background reading by strategic planners, the scanning and calibration of this kind of information is today the work of top executives, board members, and operating managers. The reasons for their sharpened focus on the many issues at the intersection of business and society are twofold: These issues pose potential risks and portend significant opportunities.

What is needed to understand social issues and engage stakeholders:

1) an open, inquisitive, and feedback-rich relationship with the environment;

2) well resourced and effective mechanisms for sensing, analyzing, and interpreting what’s going on; and

3) an internal culture that is receptive to early signals of threat and opportunity and where the “messenger” is welcomed rather than “executed.”  

 

Understanding Issues
Many polling and consulting shops profile the issues that keep executives awake at night. McKinsey & Co., for example, annually polls top executives worldwide on the importance of various social issues for business. In the past three years, environmental issues, including climate change, have jumped to the top of the list (brushed aside briefly by the economic collapse and credit crisis). Business leaders also stressed issues such as the growing numbers of consumers in emerging economies, increasingly global talent and labor markets, a faster pace of technological innovation, constraints on supply or usage of natural resources, and an aging population in developed countries. In addition, McKinsey also asked executives about the relative balance of risks and opportunities posed by such issues. On the risk side, executives saw opposition to free trade, pensions, threats to privacy, and the political influence of companies as key threats to business. By contrast, the bulk of executives surveyed saw an equal balance between risk and opportunity in calls for more investment in developing countries, for ethical standards in advertising and marketing, and for attention to human rights.  

These kinds of statistics provide a broad look at issues at the intersection of business and society. How does a firm decide which issues are most relevant to its interest and set its priorities? One criterion being adopted because of its familiarity in accounting and risk management concerns the “materiality” of issues. The concept of materiality is that companies must take an account of and disclose all information that is material to the financial decisions of its investors. Companies like Nike, Ford, BP, and others work with AccountAbility’s five-part materiality test to consider social issues as follows:

• Does the issue pose substantial risk/opportunity to the business?
• Does the issue pose substantial risk/opportunity to stakeholders?
• Is the issue covered in your code of conduct or corporate values?
• Is the issue being addressed by leaders in your industry?
• Is the issue becoming judged to be material by the “court of public opinion”?

An affirmative answer to these questions moves a social issue higher up on a company’s priority list and makes it a candidate for further investigation. Accordingly, corporate staffs prepare “heat maps” that identify material economic, social, and environmental issues in terms of their relative import to society multiplied by their potential impact on the corporation.  The “hot” issues are then brought onto the corporate action agenda. Increasingly, companies are reporting on material risks in their social reports.  
 

Stakeholder Engagement
The world’s most progressive companies in CSR, such as Novo Nordisk, IBM, Telefónica, BBVA and others have developed a core competence in stakeholder engagement and regularly work with panels of stakeholders on key issues pertaining to community needs, environmental challenges, transparency, human rights, and economic and social development. On a global scale, this means engaging stakeholders in key regions or nations in which a firm does business and factoring these inputs into global and local strategies.  

Studies show that investors, not surprisingly, are most concerned with financial performance, and certainly how products and services and innovations might affect corporate growth and return on capital.  These reputational dimensions would naturally be part of a firm’s engagement with them. At the same time, investors are also quite interested in corporate ethics and transparency (governance is a significant risk factor) and more of them are honing in on social-and-environmental performance for the same reasons (citizenship is also a risk factor and a proxy for how well a firm is managed).
The media and regulators, by comparison, might want to focus on products and services and also on citizenship, governance, and workplace factors as these mirror the public’s prime interests and their regulatory scope respectively. Select non-governmental organizations, in turn, might be more or less interested in one or another of the seven reputation dimensions.

Stakeholder consultation is core to determining what’s most relevant to corporate constituents and to deciding what to invest in, how much, and where. As a start, global data set can help practitioners to gauge stakeholder’s interests and to estimate to what extent their expectations align with corporate citizenship strategies and investments.

1.    Identify and Engage Key Stakeholders: Decisions about priorities, actions, and investments and needed actions depend on identifying and establishing a relationship with parties that have a “stake” in the business. This includes investors, customers, and employees, to be sure, but also community leaders, government officials, NGOs, the media and opinion leaders — all of whom play a part in “reputing.”  

2.    Understand their Expectations: Stakeholders carry into a firm the myriad expectations of society and, when engaged openly and equitably, can provide an early warning signal about emerging risks as well as upside opportunities. Experts on social, environmental, governance and workplace trends can offer background information and help in framing the context for future action.

3.    Consider Company Vision and Values: A CSR agenda can’t be shaped solely from the “outside in.” Inputs on stakeholder expectations and social issues have to be considered in light of financial performance, products-and-services, and other reputation drivers. Getting clarity on fundamental questions of corporate identity and vision provides an “inside-out” view that is needed to make CSR activities authentic and credible.

4.    Identify Performance Gaps: As CSR surveys show, some performance gaps are within a firm: good intentions, poor execution; a lack of alignment; resistance to change; and so on. Some are in external relationships: misunderstandings of or miscommunications with stakeholders; or unrealistic expectations compounded by a failure to deliver on promises; and so on. A process of candid self-reflection and open feedback is essential to building a CSR strategy that meets stakeholder’s interests and  improves business performance and reputation.

5.    Take Action to Close the Gaps: Guidelines for improving CSR say to align activities with business strategies, make use of core corporate competencies, pick issues to address that are “material” to the firm; look to reduce risks and capitalize on opportunities to create value. Practical experience says that tradeoffs abound and midcourse corrections are commonplace. This is what management gurus term strategy-in-action.

6.    Communicate, Communicate, Communicate: Corporate reputation is created through a combination of stakeholder’s experiences, corporate messaging, and the broader media conversation about business and specific companies. Mechanisms like social reporting and third party audits can lend credibility and transparency to corporate claims about social-and-environmental performance. But, in today’s stakeholder-driven context, there is a need for less one-way and more two-way communication.  

7.    Measure, Assess, Correct: Leading global firms today scan and calibrate their stakeholders’ interests and expectations through data bases, surveys, and focus groups. They also construct measurement systems to monitor the impact of their investments on stakeholders and, in select cases, track the reputational impact.
 

by Philip H. Mirvis for CCCD - Centrum für Corporate Citizenship Deutschland