Leading businesses in the US have grasped the real benefits of operating sustainably and engaging with stakeholders
US companies are not as heavily regulated as those in other developed nations, and corporate responsibility is not addressed as a regulatory compliance issue but rather from a social and moral choice perspective.
In the US, the notion of a triple-bottom-line approach to business success has always been a voluntary one. So while stakeholders’ expectations are growing that companies adopt more sustainable business practices that benefit people and society in addition to profits, the truth remains that companies are not obliged to participate.
Aligning with, or perhaps because of, non-compulsory corporate responsibility practices, corporate activities encompassing corporate responsibility in the US go beyond environmental, legal and workplace issues to ones that best enhance a company’s external reputation. Philanthropy and employee engagement – aka employee volunteerism – are key areas of a company’s corporate responsibility platform.
US companies have had the luxury of defining and interpreting their own view of responsible business within the context of their own company. Subsequently they have been able to measure and promote activities with greater freedom than their international counterparts.
Interestingly, US companies are much more explicit in their public statements on a commitment to corporate responsibility than their peers elsewhere, particularly Europe. But the lack of definition has led to confusion on terminology – ranging from social responsibility to sustainability, community investment and corporate citizenship – and confusion as to what they mean.
For some companies corporate responsibility is defined as philanthropic giving, while others include business activities ranging from raw material sourcing to employment practices. As corporate responsibility becomes more widely understood, accepted and practised within mainstream companies, however, there begins to be greater convergence of common activities included in a company’s corporate responsibility platform.
Changing attitudes
Sustainable business within US companies is undergoing what Aron Cramer, chief executive of Business for Social Responsibility, calls a “confluence of practice”. Historically, corporate responsibility activities within a corporation have been led by a single department responsible for reporting, implementing initiatives and communicating activities within areas such as philanthropy, volunteerism and environmental affairs.
Today, responsibility is increasingly embedded into core business functions and decisions, such as supply chain, transportation, engineering and marketing. Corporate responsibility experts are increasingly serving as resources for those functional decision-makers. Cramer says: “Companies are moving beyond philanthropy endeavours to look at corporate responsibility as a driver of innovation and competitiveness.”
Harriet Hentges couldn’t agree more. As vice-president of CSR and sustainability at food retailer Ahold USA, Hentges is responsible for developing the company’s responsibility strategy within the US. She says: “My activities are focused on making sure that corporate responsibility is implemented throughout all aspects of our business.” Areas of focus for Ahold include sustainable building practices and local sourcing.
Companies now understand that corporate responsibility innovation must begin at the research and development phase. “It’s less about managing risks and more about how sustainable business practices can impact competitive differentiation and drive innovation,” Cramer says.
Chipotle Mexican Grill, a US chain of quick-serve Mexican-style food, set out in 2001 to demonstrate that sustainably and responsibly sourced food could be provided in a low-cost, fast-food environment. Today, Chipotle serves more naturally raised meat than any restaurant in the world, and was the first national US chain to serve dairy products from animals treated without recombinant bovine growth hormone.
Customers responded. Although Chipotle raised prices on some products following the switch to naturally raised meat products, sales for them doubled. Chipotle has produced double-digit profit gains in each of the past nine years, unlike many within the competitive quick-service restaurant industry.
Other companies have demonstrated a similar commitment to innovation and customer development – GE’s ecomagination and healthymagination are two leading examples; another is Intel’s Classroom PC (see case study). Mitch Jackson, vice-president for environmental affairs and sustainability at FedEx, agrees. “Our goal is to get CSR to the research and development level, which helps us propel innovation forward and find solutions to existing and potential customers’ needs in a sustainable way,” he says.
Embedding responsibility
One of the ways that a company can better measure its sustainability results is to embed responsible business practices within a business unit. This will help determine what to measure and how to measure from the beginning, rather than downstream in the process.
US companies in all industries and at all levels of sophistication say they struggle with measuring results of corporate responsibility efforts. Generally, corporate responsibility practices are intended to reduce risks and cost, improve reputation, drive sales and increase opportunities for long-term company growth. While some of these outcomes are difficult to measure even outside the corporate responsibility realm, companies are challenged by reporting and stakeholders to assess whether or not their programmes mitigate risk or enhance company assets, such as reputation.
In the US, companies have historically kept consumers, regulators, the media and others at arm’s length, preferring to communicate approved, packaged messages to stakeholders about the company’s business or interests.
However, new media and online technology have made information about companies and their activities – or lack thereof – more accessible to stakeholder groups. Social media tools have also allowed such stakeholder groups to organise, share information and advocate for changes they wish to see within corporations.
For example, many interest groups have been concerned about various Wal-Mart business practices. They have united through the web – www.walmartwatch.com is co-managed by dozens of diverse organisations ranging from the Service Employees International Union to Clergy and Laity United for Economic Justice. Individually these organisations are small but together they represent a powerful interest group that is asking for information and demanding responses on the issues they care about.
Stakeholder groups are not always adversarial to corporations or industries, however. Many stakeholders are more interested in building relationships and having a dialogue with companies. Groups are becoming more discerning about information provided through company press releases and annual reports. “Stakeholder groups want to understand the difference between activities and achievements” says BSR’s Cramer. “They are attuned to disconnects and their expectations for collaboration and success are changing.”
Collaboration not confrontation
As a result, the relationships that companies are building with stakeholders are becoming more collaborative and results-oriented. The Environmental Defence Fund has an office in Bentonville, Arkansas, to work exclusively with Wal-Mart on environmental issues. David Yarnold, the fund’s executive vice-president, says that when Wal-Mart makes important decisions, the company moves very quickly. “If you are not at the table, you don’t get a chance to influence those decisions. By having an office in Bentonville, we’ll help assure that the environment is represented.”
Through continued dialogue, interest groups are better understanding how to influence change and developing their ability to create such change.
US companies are used to communicating their responsible business activities to stakeholders. Today, more than 75% of S&P 100 companies have dedicated corporate responsibility information sections within their websites where they document programme information and progress. Significantly this is focused on values-articulation and stories of successful initiatives – US companies lag behind European and Australian peers in issuing corporate responsibility reports.
While US companies have a history of explicit statements about their sustainability philosophies and practices, stakeholders are increasingly demanding greater transparency on how such corporate responsibility commitments are being determined, implemented, evaluated, and discussed. Consumers throughout the US have seen the downfall of companies’ reputations – including those of BP and Goldman Sachs, both of which were previously lauded as responsible business innovators.
The previous one-way flow of information no longer suffices and stakeholders are evolving their expectations of engagement. Mike Dupee, vice-president of CSR at Green Mountain Coffee Roasters, believes that stakeholders are looking for authenticity. “Our stakeholders today are expecting us to share the bad as well as the good. They expect a serious engagement and greater transparency to understand how we are conducting our business sustainably,” he says (see case study).
Companies are also beginning to see a change in their relationship with investors. Pax World Funds, launched in 1971, is the US’s oldest socially responsible mutual fund company. Pax chief executive Joe Keefe says the fund’s position has evolved from “socially responsible investing” that essentially screens out companies for doing bad things to “sustainable investing”. “This is more about evaluating companies for what they are doing to make positive changes,” Keefe says.
This is an important change and trend, Keefe argues, because it shows the willingness of investors to see beyond the idea that some companies are “bad” while others are “good”. Instead, a company that is demonstrating authenticity and transparency to shareholders on ESG – environment, society and governance – issues is rewarded. “Investors are asking more questions and expecting answers. Companies today are more willing to engage in those conversations.” Companies see the investor value in such engagement. In 2007, the Social Investment Forum identified more than $2.7tn in professionally managed US portfolios using sustainable and responsible investing. This was a 324% increase from 1995 and represented 11% of the total assets under professional management.
US consumers in particular are expecting greater transparency. Boston-based Cone’s 2010 Shared Responsibility Study examines how American consumers believe companies are engaging with them on key issues. While 84% of Americans surveyed believe that their ideas can help companies create products and services that are a win for consumers, business and society, just half (53%) feel that companies are effectively encouraging them to speak up on social and environmental practices and products. Furthermore, while 92% want companies to tell them what they are doing to improve products, services and operations, 87% of consumers felt that the communication is too one-sided (sharing positive information but withholding negative) and 67% are confused by the messages companies use to talk about sustainability commitments.
The communication challenge
As a result of this new understanding of stakeholder relationships, the challenge of how to communicate with stakeholders about a company’s corporate responsibility strategy, policy and activities has proven difficult. Jonathan Yohannan, senior vice-president for CSR at Cone, argues that the notion of traditional corporate responsibility reporting as sufficient is over. “The sweet, cute advertising isn’t enough and can backlash if the substance of a thoughtful CSR programme is not present,” he says.
Interestingly, while US consumers say they want to know how a company is engaging in corporate responsibility practices, the message is still secondary to a product or service meeting the needs of a consumer.
FedEx’s Mitch Jackson notes that, despite the company’s significant inroads into environmental sustainability, it has elected to not discuss these successes in its advertising. “FedEx now provides online capabilities for customers that are more environmentally responsible, but we have found that customers are more interested in hearing about the value propositions of convenience and time savings.” (See case study.)
When Procter & Gamble launched its cold-water Tide clothes detergent brand, its advertising focused on the consumers’ ability to “save energy and save the world”. Subsequently, Tide’s message evolved to saying that cold-water clothes washing could help consumers “save $5 per month,” which was found to be much more effective.
Yohannan agrees. He argues that short attention spans among busy consumers mean that brands need to show consumer value. “We must take sustainability issues to tangible levels, which is hard to do without oversimplifying them. Americans want a story, not deep data and analysis.”
Case study: FedEx
Materiality assessments are of growing importance to companies addressing corporate responsibility. Materiality, according to Business for Social Responsibility, helps companies rank the relative importance of an issue based on its impact on business strategy as well as its impact on society. Without a clear understanding of materiality, company executives are paralysed because every item becomes a potential sustainability subject to address.
FedEx, the logistics services company with more than 280,000 employees and annual revenues of $35bn, has found that a laser-focus on materiality helps the company with its sustainability efforts.
“Looking at materiality helped take us back to our roots of who we were as a company, which was connecting the world responsibly and resourcefully,” says Mitch Jackson, FedEx vice-president for environmental affairs and sustainability. “Materiality helped us understand that we wanted to reduce our reliance on risky sources of energy that could drive up costs and instead focus on long-term cost reductions and profitability.”
So FedEx took an aggressive approach to lobbying in Washington. Chief executive Frederick Smith led the energy security leadership council, which addressed reducing US dependence on oil. And FedEx was the first transportation logistics company to testify to the US Congress on the need to set new standards for fuel efficiency for medium and heavy-duty vehicles. The resulting Energy Independence and Security Act of 2007 requires new standards of fuel efficiency in medium and heavy-duty vehicles by 2014.
In addition, FedEx has engaged with stakeholder NGOs such as Conservation International and the World Resources Institute to address transportation and carbon reduction initiatives in communities around the world.
With more than 4.9bn litres of fuel consumed in 2006 alone, FedEx is actively testing more fuel-efficient and alternative-fuel vehicles. The company operates the largest fleet of commercial hybrid delivery trucks in North America, managing more than 1,800 alternative-fuel vehicles and equipment around the world.
By rebalancing its fleet and optimising routes, FedEx Express has improved total fleet fuel consumption in the US by 14% since 2005, saving 176m litres of fuel and more than 452,000 tonnes of CO2 emissions. Testing and use of hybrid and hybrid-electric vehicles is demonstrating that such a fleet is able to meet the needs of the company, the consumer and the environment. In addition, FedEx was the first within its industry to set a global aviation carbon dioxide reduction goal – 20% reduction in pounds of CO2 per available-tonne-mile by 2020 from the 2005 baseline year.
“Our customers want us to address issues of sustainability but not at the expense of customer value, high performance and innovation,” Jackson says. “We look at ‘practical environmentalism’ from the outset of our R&D phase – this is a way we can respond to changing parameters in the marketplace and look to do business profitably in the future.”
Case study: Green Mountain
In 1981, when Green Mountain Coffee Roasters opened a small café in Waitsfield, Vermont, few imagined that in less than 30 years the business would become one of the US’s leading speciality coffee companies. Today, Green Mountain employs more than 1,400 with net sales of more than $800m in 2009. It is the only company to be rated first on CSR.com’s list of the 100 best corporate citizens for two years in a row, including listed in the top ten seven times since 2003.
Despite its current reputation and success, Green Mountain’s social responsibility ethos was not engineered from the launch of the company, says Michael Dupee, vice-president for CSR. Instead, this ethos grew over time because employees were interested in practising greater environmental stewardship in their own lives and their workplace. Simple acts, such as turning down the heat at the end of the work day, grew into a movement that examined how the company can operate more mindfully of environmental impacts.
Dupee says: “Green Mountain wanted to create a space for employees to bring their values to work. Our commitment to sustainability emerged organically because we listened to our employee stakeholders.”
Listening to and engaging with stakeholders has become a cornerstone for Green Mountain’s efforts. “Interacting with stakeholders does not mean that they run our company,” Dupee says, “but it’s important to hear what they think and how their perspective can help us elevate our work.”
For example, in 2007 Green Mountain conducted interviews with small-scale coffee farmers, as well as NGO partners, in Nicaragua, Guatemala and Mexico and learned about the issue known as “the thin months”, a period each year when families are challenged to maintain a normal diet due to fluctuations in the price of food staples, insufficient income from coffee, and a lack of alternatives to coffee-growing for income.
The company subsequently changed its criteria for making grants to coffee-growing communities and began focusing on this issue with NGO stakeholders and supply chain members. In Mexico, Green Mountain partnered with a local cooperative to deliver fruit trees to members to help diversify income sources and provide additional food for farming families. Similar efforts are now occurring in Peru, Nicaragua and Guatemala.
Helping farmers through such programmes in turn helps secure a sustainable and healthy supply chain for Green Mountain. “We do not do it because we are successful,” Michael says. “We are successful because we do it.”
Case study: Intel
For Intel, corporate responsibility is simply “an approach to business that helps manage risks and take advantage of opportunities to create long-term shareholder value”. In other words it is about doing good and being good in all aspects of business.
Intel is the number one provider of semiconductors and has more than 80% of the market share for microprocessors in desktop and notebook computers. Its customers are primarily other businesses, such as original equipment manufacturers (OEMs) and original design manufacturers (ODMs) who make computer systems, phone handsets and handheld computing devices. But Intel has an interest in building its reputation among and relationships with end consumers, regulators and investors who impact the company’s ability to do business.
“As a company, we were challenged that most often NGOs and communities reached out to us for funding support rather than our help to find solutions to a community issue. We saw this as a missed opportunity to create real change,” says Michael Jacobson, Intel’s vice-president for corporate social responsibility.
“For instance, the IT market makes up 2% of our world’s carbon footprint, so while we should do all we can to lessen our company’s environmental footprint, the real opportunity is to understand how we can impact the other 98%, not just make a cash grant to an environmental non-profit organisation.” As a result, Intel has developed software for systems such as home energy monitoring devices and better delivery of a Smart Grid system to drive energy efficiency across the world. These products are beneficial to communities, but are also strategic business opportunities for Intel’s growth and profitability.
Intel has built into its corporate strategy an objective that states the company will grow revenue by tackling global challenges, seeing a new business climate that is focused on greater energy efficiency and saving resources. This model is not unique to Intel, but nevertheless is an exciting evolution in corporate responsibility, Jacobson argues. “We are losing the perception that CSR is just strategic philanthropy. CSR is a new way of profitability.”
Classmate PC is such an example. Classmate PC is a laptop computer used in emerging markets that has a rugged, durable structure and localised, education-friendly software.
The product has revolutionised education in emerging markets around the globe, allowing students and teachers access to low-cost technology for the first time. Additionally, Classmate PC is creating a new market for Intel in developing countries. Intel employees serve as volunteer trainers and support staff for the roll-out of Classmate PCs in new communities – creating a new product, creating a new market and engaging employees at the same time.
“We are part of our customers’ supply chain. Our stakeholders want to work with us to think bigger about innovative solutions that push CSR efforts forward. Our ability to produce products that are more efficient is to us absolutely a competitive differentiator.”
Corporations and nonprofits: too close for comfort?
Traditionally, companies and nonprofit organisations led different sectors of United States society – companies generating profit and nonprofits generating social welfare and good. They eyed each other warily and maintained minimal relationships, usually centred on corporate charitable gifts and corporate executives’ investment of time on nonprofit boards.
More recently, however, corporations began to engage with nonprofit organisations as key influencers of customers, consumers and investors. Nonprofits enjoyed positive, trusted brands and corporations sought to elevate their own reputation and products through association with these brands. Nonprofits began to understand that corporate relationships – rather than simply annual donations – brought in added resources to help achieve their mission, such as employee volunteers, logistics/transportation support or in-kind donations.
Nonprofits have realised the opportunities that came with cause-marketing and licensing of products Susan G Komen For the Cure’s campaigns have helped secure more than $1.2bn in funding to fight breast cancer since its founding in 1982. It also has used its corporate partners’ reach to educate women on the importance of breast health and cancer research.
However some commentators have become concerned that some companies have become too close with NGOs. Such relationships can skew the organisation’s ability to keep that company accountable for its actions.
For instance, the Sierra Club came under fire for endorsing Clorox’s line of eco-friendly cleaning products in exchange for an undisclosed licensing and sponsorship fee. Many of the Sierra Club’s 1.3 million members felt as though the relationship between an environmental advocacy organisation and corporation that makes other products that are environmentally harmful was a conflict of interest. Others felt that the Sierra Club’s ability to engage with Clorox at the brand level can raise needed funds and demonstrate to corporations that green products are desired and profitable.
Likewise, the Komen organisation’s “Buckets for the Cure” relationship with KFC, where 50 cents from each bucket of fried chicken sold by KFC would be donated to the organisation, has been cited as a mismatch fit and sell out by the powerful NGO.
Critics point out that high-fat, high-sodium food such as fried chicken contributes to the obesity epidemic within the US. And obesity is a known impact on the incidence and recurrence of breast cancer in post menopausal women. The Komen organisation, however, asserts that the relationship with KFC is helping to educate and mobilise a group of the population that has been hard to reach: low-income, African-American consumers.
The evolving relationships between nonprofits and corporations are taking many forms. Some publically, some in the backroom. Companies such as Wal-Mart and McDonald’s are engaging with environmental NGOs to understand how they can make big changes that reduce environmental impacts of their facilities.
What’s evolved is the two parties’ willingness to engage in the conversations and be solution-oriented, rather than simply keeping a stony distance. NGOs are finding this is a more appealing and fruitful way to influence behaviour change within a corporation.