It's time to address a growing challenge for communicators - what role corporate social responsibility (CSR) should play in a complete communications strategy.
In an in-depth analysis late last year, The Financial Times concluded, "CSR has never been more prominent on the corporate agenda... Yet the broad view is that business's performance on CSR has never been worse." More recently, there has been extensive media commentary and debate - notably in The Economist - about the value of CSR in a bottom-line, shareholder-value driven corporate environment.
In my view, CSR should be part of a comprehensive communications strategy - not just because it's the right thing to do, or because tragic events in the world create a desire in us to respond. There is a solid business case for embracing CSR in an overall communications and investor relations program. In a sense, it's not only the right thing - it's the smart thing to do.
The PRSA Strategic Social Responsibility Committee will continue examining this topic in 2005. We believe that the available data demonstrates that a well-conceived CSR program not only benefits your corporate reputation but can also impact the bottom line and motivate current and prospective employees. More recently, due to the rise of socially responsible investing (SRI) as a force in the investment community, there may be a market valuation upside as well. Let's look at each element in turn.
First, there is a potential to directly benefit your ongoing operations. Most businesses - not just natural resource companies - need a social license to operate and expand. The granting of this license is often the output of a long, protracted process of regulatory and political review - subject to extensive public and media scrutiny.
Imagine the benefit if your company had an established and well-documented CSR track record - whether for infrastructure development, technology investment, education/training or improved health care. Through a solid CSR program - and communicating effectively about it - you have a better chance to expand your business/operations in an orderly and timely fashion.
Second, there is the potential for enhancing employee pride and satisfaction and thereby attracting the most talented individuals to your organization. This latter point is underscored by a recent study by Stanford Uni-versity's Graduate School of Business. In 2003, Stanford surveyed 800 MBA students from leading North American and European schools on the role reputation and ethics played in their career plans.
The surprising result: More than 97 percent of the respondents said they were willing to forgo financial benefits to work for an organization with a better reputation for corporate social responsibility and ethics. On average, the MBAs said they were willing to forgo as much as 14 percent of their expected income.
Merck decided several years ago to give away a drug to battle river blindness, a parasitic disease transmitted to humans through the bite of a blackfly found along river banks in Africa. Roy Vagelos, the now-retired chairman and CEO of Merck, put the human resources benefits of CSR leadership into perspective: "We could hire almost anybody we wanted for 10 years because of the feeling that decision created about the company," he said.
From a stock market perspective, there is clear evidence of the potential to improve, or at least protect, your company's valuation. According to a recent study by the Social Investment Forum (a U.S. nonprofit association dedicated to promoting socially responsible investing), SRI funds have grown 40 percent faster in the past five years than all other professionally managed investment assets.
In a recent article, The Santa Fe New Mexican reported that "More than 11 percent of all investment assets under professional management in the United States at year-end 2003 - $2.16 trillion out of $19.2 trillion - are in professionally managed portfolios utilizing one or more of the three socially responsible investment strategies: screening, shareholder advocacy and community investing."
Further evidence that CSR impacts market perceptions and governance comes from the dramatic rise in shareholder resolutions in recent years - many of which give voice to activist group concerns about corporate conduct and ethics. According to the Investor Responsibility Research Center (IRRC), in 2002 there were 802 shareholder resolutions brought to a vote at company meetings; in 2003 that number increased to 1,082 and by annual meeting season last year, the number was up to 1,147. Further, these resolutions are progressively receiving more votes - with 161 of them in 2004 actually passing.
Lastly, for those companies whose growth depends on consumer acceptance, there is increasing evidence that buyers will choose a product or service based on a company's reputation for ethics and responsibility. A recent study by Golin Harris of more than 2,500 American consumers concluded that 69 percent cited corporate citizenship as "important to their trust in business," and "52 percent are inclined to start or increase their business based on positive perceptions of a company."
Many of the world's best known companies, such as Alcan, BP, FedEx and ITT Industries, are leading the way, but this need not be limited only to global players. The entire corporate sector - midsize and small cap - can leverage this trend. Further, because of our role as communicators, public relations is the ideal party to lead the way.
Alcan, which has taken the top spot in the metals industry on Fortune's 2004 list of the World's Most Admired Companies, has demonstrated a strong commitment to sustainability. Led by President and CEO Travis Engen, Alcan has linked its sustainability efforts to the company's overall value proposition to stakeholders.
Recently, in a major speech in Toronto, Engen said, "Doing the right thing reinforces our license to operate and grow within our communities. It makes us a stronger company, a more attractive investment, a more solid business partner and a better employer. It allows us to grow our business in a manner that generates real, sustainable value in all of its dimensions."
Or take BP. Well-known for its proactive environmental policies and global visibility on sustainability, BP's CEO, John Browne, said in a recent speech: "We are grappling with difficult and complex issues in challenging parts of the world. But I am convinced that BP must be a force for good wherever we operate and that corporate responsibility must remain at the heart of our business, driving everything we do."
This leadership position is reflected in the company's core belief that investors and other stakeholders want a company with strong environmental and ethical policies in place that accord to the best practices in the areas they address. They want to be certain that companies are acting responsibly and are transparent about how they manage political risk and the measures they take to protect the environment.
Bill Margaritis, corporate vice president, communications and investor relations at FedEx, said it well. "Corporate social responsibility is an emerging challenge, one that senior communicators need to monitor and respond to appropriately given their company's position and visibility in the global marketplace. At FedEx, we view CSR as an important element in our overall reputation management program."
ITT Industries, a leading global multi-industry company, has also addressed the CSR challenge enthusiastically. "We derive a significant portion of our revenues from helping clean the world's water. We have also elected to implement global environmental standards that, in many cases, exceed the local requirements," Tom Martin, senior vice president and director of corporate relations at ITT Industries, said. "Our CSR initiatives are an important part of our commitment to being an environmentally responsible company with actions that speak louder than words."
Developing an effective CSR communications strategy
So what does this mean for you, and how do you respond to this trend and integrate it into your program? The process is simple but challenging:
Make CSR a business priority; conduct a thorough audit of the needs facing your communities; make resource commitments consistent with your business skills and corporate strategy; follow through and then communicate the results - both inside and outside your organization.
Some key elements to be considered in formulating an integrated CSR strategy include:
Clearly, stakeholders around the world - sometimes led by investors, other times by activists - are measuring corporate conduct against CSR guidelines. They may punish those who come up short or, hopefully, recognize and reward those who lead by example. Which team do you want to be on?
Even if the importance of CSR is overstated, it will do no harm to your corporate reputation, employee morale, product sales or market valuation to use CSR guidelines as a leading indicator of what investors, the government and the general public expect of corporations today. In the long run, your company may well benefit as much as the people and communities you support.
Larry Parnell is the principal of Nomad Strategic Communications. He is also a senior counselor at Hill & Knowlton Canada. He was recently elected program chair of PRSA's Strategic Social Responsibility Professional Interest Section.