Corporate Social Responsibility: What the Smart CEO Needs to Know

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Corporations exist primarily to create wealth by developing new and innovative products, pleasing customers and delivering shareholder value. This "value proposition" has been the source of the private sector's great influence and legitimacy in society for many decades. Increasingly powerful stakeholders challenge this view by arguing for a new context of business in which wealth creation is but one of a number of objectives necessary to ensure society's well being.

In this viewpoint, business has a primary responsibility to help solve a growing number of social needs. These include improving environmental, health and labor practices; mitigating global climate change; reducing social inequities (including excessive amounts of executive compensation); reforming governance in the private and public sectors; reducing risks from products; expanding the commitment to diversity; protecting human rights; opposing corruption and promoting more representative forms of government; and supporting educational opportunity, health care and community programs.

This agenda of "corporate social responsibility" is rapidly expanding, is global in scale and visibility and has the growing potential to reshape business reputations, strategies and markets. Already, a number of activist initiatives have successfully targeted companies that possess well known and highly valuable corporate and product brands or exhibit business practices seen as inconsistent with responsible corporate behavior.

CEOs and other corporate leaders often lack direct knowledge and experience in managing social responsibility challenges. How can they maintain their focus on value creation while minimizing the potential disruptions to their business from these increasingly powerful external forces?

For six years I served as vice president of the Responsible Care initiative in the U.S. chemical industry, a position that has provided me with direct access not only to chemical company CEOs but those of a number of customer and other supply chain companies. Based on these conversations I have identified five essential issues that CEOs should focus on to achieve the appropriate integration for their companies' private and public responsibilities:

1. Recognize that demands for corporate social responsibility reflect a shift in society's priorities. With the end of the Cold War and the increasing influence of economic globalization, civil society has increasingly turned to the private sector to address critical needs including disease prevention, provision of potable water supplies and educational opportunities. Such demands seek to fill a vacuum arising from government inaction and/or ineffectiveness in both developed and developing nations. They also reflect the inevitable claims upon private sector generated wealth at a time when more than forty of the world's largest economic entities are companies, not countries.
2. Manage social responsibility challenges as part of corporate governance. Existing governance legitimately focuses on such issues as leadership of the company, compensation, business strategy, risks to the business, regulatory compliance and performance outcomes. As social responsibility issues ascend in importance, they need to be integrated as part of the governance process including the direct participation of the CEO and the leadership team, the Board of Directors and line managers. Given the increasing frequency of challenges to the company's brand and business strategy, managing corporate responsibility is not a task for delegation to technical, legal or public relations specialists nor should decision making be compartmentalized from the rest of the organization.
3. Look upon corporate social responsibility as a strategic challenge and not as a series of high profile initiatives. Companies directly confronted over the environmental, political and social impacts of their activities have generally responded by adopting actions to relieve pressure points affecting specific parts of their business. As examples, companies have implemented initiatives to address concerns over wage rates and working conditions in their supply chains, invested in community improvement programs near their operating sites and reformulated individual products when confronted by specific health risk concerns. Such actions may be individually justifiable but, taken together, they are largely reactive in nature and are unlikely to enable a company's leaders to shape their external business environment. Before jumping into the "initiative lifeboat," a strategic assessment of social responsibility issues and their relationship to the company’s value proposition should first be conducted to identify and manage the major risks and opportunities for continued business success.
4. Measure society’s expectations as part of the business process. Companies have developed sophisticated methods to assess the needs of customers, financial analysts, investment banks and regulatory agencies. This approach should be followed to enable business leaders to understand the views of social responsibility proponents who are increasingly able to communicate directly with customers, shareholders and current and prospective employees. Companies such as BP, Dupont and Procter and Gamble have organized ongoing dialogues with groups espousing social responsibility issues. Information obtained from these sessions has been used in making specific business decisions that include alternative energy, biotechnology and water conservation, thus expanding rather than contracting options for generating business value.
5. Define success for the company. Companies have demonstrated great skill in evaluating risk/return uncertainties across their business portfolios over many decades. A key enabler is the ability to leverage corporate attributes (e.g., business strategy, products or even culture) not easily replicated by competitors in the midst of market, political and technological changes. Success in managing social responsibility issues follows a similar logic and is designed to protect the corporate brand and reputation, enhance market access and generate opportunities for product improvements and innovative partnerships across a range of business activities. Conversely, failure results from having to react to multiple political and social challenges that subtract management focus and company resources in a global marketplace populated by competitors, stakeholders and media ready to pounce early and often at the slightest mishap.

Corporate social responsibility is an increasingly powerful movement seeking to bridge the gap between the impacts of a rapidly accelerating global marketplace and slow moving or ineffective government. At a time when the influence of business is high and its reputation is low, social and political forces in both developed and developing nations seek to place added responsibilities on the private sector to deliver additional goods and services to fill this gap. For many companies, corporate social responsibility is not regarded as a welcome choice, but it is becoming an increasing necessity for business planning and success. For their companies’ self interest, and that of the societies in which they operate, CEOs should become more directly engaged in deciding how wealth generating opportunities that benefit society can be positively integrated with company decision making.

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Dr. Terry F. Yosie is a former senior executive of the U.S. Environmental Protection Agency and the U.S. chemical and petroleum industries.

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