Now that we’ve looked at business purpose, let’s turn to the marketplace. Corporate citizenship is very much about building relationships, and there are many interested parties who would love to influence what you’re doing. This can be difficult to manage, but at the same time can be of enormous help when you’re developing your strategy. The more effectively you engage with these stakeholders, the more leverage you will have with them as you implement your corporate citizenship strategy.
This chapter is about how to determine which key audiences in your marketplace to engage, and how to turn them into allies and resources as you implement your corporate citizenship strategy. We’ll look at customers, activists, employees, and investors, as these are groups you’ll need to understand and engage with if you want to be an influential player in the corporate citizenship space. Employees are a particularly important stakeholder group. We’ll talk more specifically about them in Chapter 3.
Who do you “speak to” out there in your marketplace?
One of the first groups you probably thought of is customers, but let’s define what we mean by customer. When we mention famous brands such as Intel, Nike, and Coca-Cola, you probably think of them as being “business to consumer” companies, but virtually all companies apart from retailers (whether online or not) sell to other companies, and not direct to consumers. For products like Coca-Cola, that means supplying distributors and grocery retailers, not the general public directly. For the purpose of this chapter we’re defining customers as the first purchaser in the value chain. Companies clearly market to their end consumer, but understanding the needs and interests of your first primary customer is critical to creating value with your strategy.
Your initial step is to identify your customers, and then to prioritize them. Not all customers are created equally; some have more value to you than others. If you’re in the consumer products sector in the United States, for example, one of your largest customers is likely Walmart or Amazon. You might also have strategic partners, or customers you’re trying to grow from small to large. Consider your key customers or customer segments and create a prioritized list. You could base this on size or influence, although you might also consider factors such as geographic areas where your business wants to expand, customers who are growing the fastest, or even customers who best align with your strategic focus. Your sales and marketing department should be able to help you with this.
The products and services you sell have an impact on society far wider than their actual usage. This ranges from the actual impact (the environmental, human, or societal impacts of what your company produces) and the perceived or realized impact (views held by your customers and consumers).
If you’re a manufacturer, this impact is tangible, and you can see it playing out every day all across the world. Sugar taxes imposed on soft drinks in various countries, and the debate about whether advanced pharmaceutical drugs should be made available in undeveloped countries, are just two examples of how products are not just products in customers’ eyes — they’re bundles of ethical and cost issues. This presents both challenges and opportunities for you. Re-thinking how you source and deliver products can lead to a host of different ways to approach things. Consider the simple yet transformational reduction in laundry detergent package volume and weight that developed from the decision to create a more concentrated product in order to ship less water, at lower volume/weight and therefore lower carbon intensity and transportation costs. This is a great example of an improvement, driven by the efforts of big box retailers to reduce shipping cost, maximize shelf space, and manage natural resources, which has brought both increased profit and environmental benefits.
For decades, the performance regulations companies had to deal with in the corporate citizenship space were all “you shall not” — you shall not emit so many pounds of this, you shall not dispose of so many tons of that.
As time went by, companies grew accustomed to working with these guidelines, and in fact many businesses began to move faster than regulatory frameworks to improve environmental performance. In recent years, the worlds of regulation and voluntary standards have moved toward a disclosure mindset — in other words, to be competitive, businesses are expected to provide customers — and sometimes the general public — with information so that they can make their own purchase or “enforcement” decisions.
Dealing with disclosure regulations versus performance regulations may sound less daunting. As a corporate citizenship manager, the focus on disclosure rather than performance can make it more challenging to drive action within your company than if the performance improvement was compulsory. People feel more compelled to act when you say, “We need to change how we do this because there’s a law against it,” than they do when you say, “We need to change how we do this because we’re required to disclose how we approach a certain issue.” This is certainly the case with relatively new disclosure requirements such as climate change risk disclosure in the 10K (the U.S. listed companies’ regulatory filings), conflict minerals, or slavery and human trafficking (for any business that operates in California). Expect to see many more types of “disclosure” regulation in the future as customers and the general public demand and grow accustomed to ever increasing product transparency. So, this is where much of the work you do to build excellent internal relationships comes into play.
You may wonder about products where there is an ethical or sustainability component, such as those labeled eco-certified, fair-trade, organic, and locally sourced. While the number of products and services for which customers are willing to pay a sustainability or ethical sourcing premium remains limited, that number is growing as consumers look for a different kind of marketing promise. Companies and consumers alike want to buy from companies they believe represent their personal values, even if they’re not always willing to invest more for the privilege. So the overall messages you send about actions you take on corporate citizenship issues do impact your company reputation (which has a financial value) and sales.
Notes from the Field
Leveraging Your Company’s Core Competencies in Corporate Citizenship Strategy
Christopher T. Lloyd is Executive Director, Public Policy Development & Corporate Responsibility at Verizon
At Verizon, we know that consumers and global activists are prepared to use the power of the Internet and social media to hold companies accountable for delivering community value. The genesis can be found in the 2008 global economic crisis that demonstrated unilateral business models that extract resources from communities, and only deliver value to business owners and shareholders, are not sustainable. It was during this crisis of confidence that consumers and stakeholders signaled to banks, extractive firms and manufacturers, among others, that businesses need to provide value to the community in exchange for a continued license to operate.
Expectations for shared value creation have led Verizon to think about solving the daunting challenges facing the world in ways that generate significant business and social value. Last fall the United Nations published a list of the 17 most pressing global priorities in the form of the Sustainable Development Goals (SDGs). Each SDG describes a social challenge that represents a market opportunity. Entrepreneurs are building lucrative and sustainable businesses by addressing these challenges, and instinctively using technology as the core to problem solving. We have overlaid our corporate citizenship strategies on the SDGs as a way to strengthen understanding and impact.
The Internet of Things (IoT) — that is, ubiquitous connectivity, the cloud and big data analytics — can be strategically applied to solve problems. By connecting almost anything to the Internet processes can become smarter, greener, and more efficient, thereby scaling solutions and delivering societal impact and value.
At the core of this type of entrepreneurial innovation are entities such as Hahn Family Wines that has partnered with Verizon on a project to increase agricultural yield in drought-stricken California. The winery is using an IoT solution to optimize grape harvests. Management receives data regarding soil and air conditions from wireless sensors in the ground and data analytics convert the data into actionable information to help determine when to irrigate, helping to reduce water use and operating costs.
By looking at social challenges as market opportunities and applying technology to transform data into information, Verizon is helping Hahn Family Wines and other tech-savvy entrepreneurs gain new information about solving social problems and are creating sustainable business models that generate value for society and for business.
Disclosure-based regulation has forced many businesses to look into their supply chains to build self-assessment strategies. In fact, a whole new consultancy profession has emerged to help corporations manage this (maybe it’s even a potential career opportunity for you). Disclosure-based regulation drives a different set of behaviors than performance-based regulation; so this is an emerging area you need to learn about and understand.
There are disclosure guidelines and standards set up for most sectors to manage performance tolerances. For example, you have probably heard of ISO9000, which was the original quality management system. There is also SA8000 for responsible workplaces and social standards, ISO14000 for environmental management systems, ISO26000 which sets a framework for corporate citizenship and social responsibility, and the Global Reporting Initiative (GRI). These are all resources to help manage and monitor work and to define the standard of practice or production. These exist for corporate citizenship and we will discuss them in greater depth in Chapter 9.
So who are your stakeholders? They’re groups such as suppliers, customers, and employees. You can also add external groups such as competitors, members of the communities where you operate, values-based investors, issues advocates, regulators, activist groups, and policy-makers.
Most large companies attract a wide range of advocates, activists, and values-based investors (more about the investors later). There’s a widely used acronym that covers most of their areas of interest: ESG. Historically, the first impulse of business people, at least in the United States, has been to dismiss stakeholders with ESG concerns as anti-business, anti-market, anti-progress socialists who don’t understand the power and importance of market forces. This response represents a lost opportunity, because if you dismiss the chance to hear from your nonfinancial stakeholders, you can’t learn from them. In today’s world of citizen journalism and social media, thinking of those who call for accountability from institutions as fringe is no longer practical. These stakeholder groups can gain traction and support quickly.
Ask yourself, what issues are most important to each of these stakeholders? You probably have a sense about the most pressing issues in your marketplace already. However, different stakeholders will have different priorities. Many are single-issue focused — organizations we would normally think of as activists, or advocates for a cause. They wake up in the morning and it’s deforestation; they go to bed at night and the issue is still deforestation. Every time you talk with them, it’s always about deforestation. So while you’re trying to manage multiple issues from a corporate citizenship perspective, they’re trying to get you to focus on their one thing. They may have had a relationship with your business based on that single topic for many years, and while they may sometimes be challenging to work with, they can also be the most helpful in identifying how their issue will impact your business long term.
Somebody — in other words, you — has to step into the role of Issues Manager. This means monitoring emerging ESG trends and taking the initiative to seek out the single-issue activists that most people would rather not engage with. It can be intimidating to talk with groups whose primary role may be to criticize what you do as a business, but if you go out and meet these people and really try to understand what makes them unhappy, you’ll often find places of common ground. It’s far, far better to have a relationship with an activist organization that’s willing to speak to you privately than for them to launch a public campaign against you. Not only that, you’ll have the advantage of tapping into their own intelligence, which will help you see around those corners we mentioned earlier.
Remember, if you want to be a leader in corporate citizenship you don’t just need to manage this process, you need to leverage it so you’re the best in your sector — even the world. You need to create a competitive advantage out of the thing that looks like trouble to other companies. You may be the one person in your organization who really understands the activists’ agendas, so the information you’re gathering is extremely valuable both to you, in corporate citizenship, and your business. Engaging these groups can also enhance the work your company or industry association is doing to establish norms and standards of practice to address complex social and environmental issues such as sustainable consumption and climate change.
How so? Part of your job is to identify issues and spot the things you’re not dealing with today, but will likely need to manage in the future. Most ESG issues have a fairly predictable trajectory; they’re quiet to begin with (which is when we tend to ignore them), they ramp up over time and get attention, especially on social media. It should be obvious that the early part of the curve is the best time to engage and start to leverage the relationship; by the time the issue has escalated, reaching a tipping point while making national news, it’s too late. You’ll just look defensive.
If you’re a huge corporation, you and your CEO need a credible, well-oiled reputation with global governments around the world. You certainly don’t want him or her asking you why activists are protesting outside your shareholder meetings, about a topic that wasn’t even on your radar. There’s not a company in the world with a famous brand name that is not engaged in emerging ESG issues right now. They do it either because they’re forced to do it, because they want to do it, or because it gives them a competitive advantage. The choice of how you engage is yours.
An example of this is how the U.S. food sector is engaged in the controversial subject of GMOs, or Genetically Modified Organisms. This topic has been simmering in the United States for decades but recently reached a boiling point, with broad debates across the industry, on social media, in State laws and ballot proposition and eventually resulting in Federal legislation signed by the President in July 2016. Campbell’s Purpose informed the company’s response to this set of issues. Since its founding, the company had been committed to providing wholesome food to families. The evolution of agricultural technology has introduced, along the way, issues that could not have been anticipated by the company’s founders. In each case, however, the founding purpose informed the company’s response. Campbell executives had been monitoring the topic for a few years and were the first major food company to call for national, mandatory labeling of GMOs on packaging — a move which was disruptive within the food sector.
Leading the market to a new way of doing things is not often easy. Another example of this is from the automotive industry, parts of which have been racing to produce hybrid or electric vehicles to increase their competitive advantage. Toyota’s launch of the Prius would not have predicted the success Toyota has experienced with the model over the last 20 years. In 1997, Toyota released the Prius in Japan and then released it worldwide in 2000. The Prius Prime responds to the advances in battery technology and allows for a plug-in.
Initial testing in the United States, in 1999, before release to the general public nearly derailed the Prius before its debut. The few drivers involved in the testing were less than impressed. When the car was first released in the United States, performance was lacking; the Prius took 13 seconds to go from 0 to 60 mph and the transition from electric to gas power was not smooth. Subpar acceleration combined with an untested market for the Prius, almost halted plans to sell the car outside of Japan.
Toyota in the United States had to do some hard negotiations with Toyota Japan to get the price down to one that the soft U.S. market would accept. Toyota had to modify the vehicle’s design to meet expectations of more discerning buyers in the United States, like more horsepower, better interior finishes, etc. Environmentally conscious buyers and a handful of vocal celebrities like Ed Begley promoting the idea of alternative fuel vehicles prevailed and the Prius caught on. Toyota had to respond to the market after testing, but it also had to lead the market to hybrids. Today, Toyota cars account for more than 70 percent of all hybrid cars in the United States,1 which is the second largest hybrid market in the world after Japan. Tesla’s entry into this market and its partnership with Solar City promises further disruption for the industry.
Notes from the Field
The Role of Companies in Public Policy Debate
Dan Bross, Senior Director of Corporate Citizenship and Executive Director of the Microsoft Technology and Human Rights Center (Retired) Microsoft
Corporations have a responsibility to their shareholders, communities, and employees to participate in the public policy process to enhance business and shareholder value.
The question is not — “should corporations participate in the public policy process” but rather — “how do corporations participate in the public policy process.”
Corporate participation in the public policy process is an important means of enhancing the business and social value that companies deliver and is fundamental to free and democratic societies. Microsoft participates in the public policy process in countries in which we have operations around the world. That participation is focused on public policy issues that are core to our business and important to our stakeholders. We believe our engagement serves our business interests and also creates stronger, more informed public policies.
Our engagement in the public policy process is grounded in and guided by our unwavering commitment to strong corporate governance.
Louis Brandeis is famously quoted as saying, “sunlight is the best of disinfectants, lamplight the most efficient policeman.” At Microsoft, we believe strongly that a corporation’s public policy advocacy should be fully transparent. Our engagement is outlined in our annual global Public Policy Agenda that is available on our corporate website. The priorities identified on that Public Policy Agenda are based on our assessment of current and emerging national and local laws and regulations.
Five fundamental principles inform our policies and operational practices:
In the United States, we work to advance our policy agenda by: (1) supporting a government affairs programs designed to educate and influence elected officials on key issues directly related to our business; (2) supporting candidates both directly from corporate funds (where allowed by law) and from funds contributed by employees to the Microsoft Political Action Committee (MSPAC); and (3) membership in industry and business trade associations and coalitions.
The Regulatory and Public Policy Committee of the Microsoft Board of Directors is responsible for overseeing the company’s public policy work and receives regular updates and briefings on Microsoft’s public policy engagement.
I started my career in the political and activist arena — working for equity in access to healthcare for those suffering from HIV/AIDS. In my time in those roles and at Microsoft, I’ve seen some of the most important issues of our society addressed effectively by companies: education, marriage equality, immigration, and human rights to name just a few. The companies involved actually became leaders in the movement to address these issues. Corporations are, ultimately, communities of people working together towards shared objectives. Both individual citizenship and corporate citizenship are required to solve the biggest problems of our time.
Sometimes it does not make sense to forge ahead alone to lead the pack due to lack of resources, expertise, or executive buy-in. Other times you may have missed the leadership position on a particular issue that will continue to be material to your business operations. In those cases, it is often better to collaborate with others in your industry to address the issue either through tactics including voluntary standards, codes of conduct, supplier training, and others. This is sometimes referred to as pre-competitive “collabotition” or the practice of collaboration with competitors to achieve mutually held and undifferentiating objectives. Industry organizations like the Electronic Industry Citizenship Coalition (EICC), the Forestry Stewardship Group (FSG), and many others exist to help companies work through issues material to the whole industry efficiently.
So how do you stay on top of all this? As a corporate citizenship professional, you’ll spend a significant amount of your time dealing with activists and advocates, so the sooner you come to terms with this and find ways to use it to your advantage, the better. To get started, create a list of your main stakeholders, identify their potential issues relative to your company, then create a list of priority issues. You could organize it by topic, functions in your business, or regulatory changes happening around the world that could potentially have a negative impact on your business. Are there developments in Asia, for instance, that could be an early warning of what could happen in your country, or vice versa? In Europe GMOs were required to be labeled long before the United States, so this is an example of a change in one geographical area that diffuses to another market. Large companies operate globally and what happens in the EU is likely a precursor to what happens elsewhere. For example, starting in 2017,2 EU Directive 2014/95 affects any company or organization (undertaking) operating in an EU member state with the following attributes:
This directive requires that all member states establish guidelines for disclosures on sustainability social and environmental factors, with a view to identifying sustainability risks and increasing investor and consumer trust. in order to take account of the multidimensional nature of CSR and the diversity of the CSR policies implemented by businesses matched by a sufficient level of comparability to meet the needs of investors and other stakeholders as well as the need to provide consumers with easy access to information on the impact of businesses on society. This push toward transparency will certainly have an effect on the disclosure practices of companies all over the world.
Another example is animal welfare. Treating animals in a humane way is one aspect of this, yet the topic also feeds into product labeling and other areas such as cage-free chicken or crate-free pork. Already, companies are shifting their positions on subject such as antibiotic-free meat, or even plant-based proteins taking the place of animal proteins. Some of these issues may not have yet reached the burning issue stage, yet they need to remain on your radar. When do you expect these issues to become business-relevant, and how could they impact your business and customers? We’ll look at the process for tracking stakeholders and issues in Chapters 3 and 4.
You also need to recognize how difficult it would be for your company to change operations or processes in order to leverage these developments. This means building an internal communications system that enables you to share issues with decision-makers in your organization so they too can start considering alternatives ahead of a crisis. It could be via a newsletter that goes out once a week or month, talking about the hot ESG issues you’re watching on the heat map, analyzing other companies around the world currently experiencing challenges in this area, and explaining how your business is — or might be — prepared to ward off such trouble. This will help you communicate the right information to the right people, including your government affairs team, those who decide where to locate manufacturing facilities, the purchasing department, and other relevant players.
By setting up a regular communications channel you’re not only building collaborative relationships with those who could otherwise mobilize against the company; by doing so you are elevating your potential influence as the person who’s helping the corporation be proactive and stay competitive. You represent a tremendous information asset, and will be a go-to colleague when peers confront continually emerging controversial issues.
Investors in your business come in many shapes and sizes — institutional, private, socially responsible, values-based, and ethical. It’s the larger institutional investors with a socially responsible ethos we’ll focus on here. As a group they file hundreds of shareowner resolutions each year related to ESG topics. These resolutions demand better disclosure of corporate activities that run the gamut ranging from political contributions, environmental or supply chain activities, remuneration, or governance structures and practices just to name a few topics. Investors may ask whether there’s sufficient gender or racial diversity on your corporation’s board, or how easy you make it for shareowners to access board meetings. In recent years these proposals have been gaining a lot of traction, as well as higher vote tallies.
Just as with issues-based activists, so it is with values-based investors. If you’re not paying attention to them, you’ll not be managing a relationship, and you will potentially be responding to a resolution.
With this in mind, almost every large company has adopted a strategy to engage with large values-screened investors and analysts on a periodic basis. Intel was one of the first companies to do this formally back in 1998, which resulted in it earning recognition and credibility with social investors. As a result, by 2003 Intel stock had become the largest holding in socially responsible mutual funds in the world.3 Why did Intel go to all this trouble? Because these values-based investors see a high level of ESG performance as indicative of a company’s long-term success; engaging with them meant Intel could build a win-win relationship. Values-based investors can often serve like your external partners from a corporate citizenship perspective. They care not only about the financial success of your business, but also about the long-term ESG assets of your company. Corporate citizenship leaders and managers can work proactively with their investor relations teams to identify and develop strategies for addressing “hot” issues.
So how can you replicate Intel’s success? Set up a scheduled meeting, just like we talked about with the activists, but this time between yourselves and the investor groups that are focused on environmental or social governance. Your aim is to educate them about what you’re doing and listen to their concerns. Intel found this process created significant trust, and also generated a wealth of information and market intelligence which helped inform their future strategy.
There are many ways to stay linked to this group of values-based investors beyond having face-to-face meetings. You can monitor shareowner resolutions online, and find out the resolutions other companies in your sector have already been faced with. Resources include U.S. SIF (the Social Investment Forum), ICCR (the Interfaith Center for Corporate Responsibility), and PRI (the Principles for Responsible Investment). These are just a few of the groups that monitor and track long-term issues that values-based investors are thinking about. For instance, as we’re writing this book, the CEO of Blackrock (one of the largest institutional money managers in the world) has just sent a note to hundreds of CEOs asking them to place more focus on ESG topics. It’s an area where changes are happening on a daily basis.
If you’re like many corporate citizenship professionals, you might underestimate the level of work involved in creating advantage in your marketplace. You have to meet with key customers, activists, and investors, research what they’re doing, map out what’s going on in their world, and inventory and compare your initiatives and goals against these issues. Once you’ve done that you need to share your findings internally in a way that your company’s decision-makers can understand which will also cause support for your company and corporate citizenship program. It’s not complex, but it is important.
With your B2B customers, the conversation will revolve around seeking to understand what they’re doing from a corporate citizenship perspective, and how you as a key supplier can help deliver that for them. In the same way that you’re being strategic about your own program, you’re also being clever as you find out the relevant information, then communicate it so it can be used by the right people at the right time within your organization, as opportunities arise. For example, if you’re an insurance provider with skills and knowledge in workplace wellness, you might help your corporate clients create their own health and wellness programs. If you’re a food manufacturer, you could work with your customer to develop sustainable packaging so they achieve their own sustainability targets more easily.
With activists related to your sector, you want to demonstrate that you are willing to engage with them to seek a win-win scenario. With values-based investors, meetings will demonstrate to them how seriously you take their concerns and long-term viability of your business.
All these actions are like currency with your customers, activists, and investors. They add value for them, and strengthen your relationships with them. This doesn’t happen by accident. You need to make these strategies and tactics part of your action plan.
1. U.S. HEV sales by model (1999–2013).
2. http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014L0095
3. Research Magazine (2003), Intel Corporation (2004).