Large corporations do not enjoy a good reputation with the public. A recent study by the University of Massachusetts Lowell and the Boston Herald found that 71 percent of Americans have an unfavorable opinion of big business.
We read about BP's disastrous oil spill in the Gulf of Mexico and about the scandals at Wall Street brokerage firms. But beyond the bad news, there is a slow, but inexorable march toward more responsible corporate citizenship, or social responsibility as it is sometimes called.
Out of the spotlight, companies like Minnesota's Ecolab are making the world a better place. Recently named one of the world's most ethical companies by the Ethisphere Institute, Ecolab focuses on providing clean water, safe food, abundant energy, and healthy environments. In 2013, Ecolab's technology helped their customers save approximately 110 billion gallons of water.
The corporate social responsibility movement is following a path parallel to the one traveled by the quality movement some years ago.
After WWII, U.S. industry geared up to meet pent-up demand. Products had to be plentiful, but not necessarily of high quality. But then, Japan slowly rebuilt its industry with high-quality products. First the Japanese threatened to take over the electronics industry and then the automobile industry. In response, the United States instituted the Baldrige National Quality Program. Over time, that program helped us learn that improved product and service quality reduces costs and that delivering greater customer value also yields increased profits.
While trailing the total quality movement by perhaps 30 years, corporate social responsibility is following an evolutionary path toward excellence. Corporations have come a long way since 1970 when noted economist Milton Friedman wrote in the New York Times "there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
Going beyond the minimum
Public opinion has forced corporations to go beyond minimum regulatory requirements and act more responsibly. For example, Nike had to rebuild its reputation after it was discovered that the firm used child labor in its production process. The Reputation Institutehas determined that 42 percent of a company's reputation is driven by perceptions of corporate social responsibility. In a related study, Interbrand/JP Morgan found that one third of a corporation's share price is determined by its reputation. Corporations cannot afford to be bad citizens.
Gradually, corporations are realizing that they have responsibilities beyond shareholders. The term stakeholders came into use, encompassing customers, employees, suppliers, the environment and the community, as well as investors. Corporations are discovering that they can create shareholder value by creating value for all stakeholders.
For example, the Great Places to Work Institute recently reported that the stock return of Fortune Magazine's 100 Best Places to Work is twice that of other companies. General Mills, ranked in the 100, finds that its low annual turnover rate of just 3 percent results in higher employee productivity and lower recruiting and training costs. Similar results can be cited for other stakeholders.
The concept of doing good and doing well is known as "shared value." In the January-February 2011 issue of the Harvard Business Review, Michael Porter and Mark Kramer define shared value as a strategy that enhances a company's competitiveness while simultaneously advancing the common good of the community.
Examples of shared value include Dow Chemical's creation of a new business with Nexera sunflower and canola seeds that helped removed 600 million tons of trans fat and saturated fat from the U.S. diet. Also, Intel's training of 10 million teachers in the use of educational technology, which led to a profitable business.
As for-profit companies become more socially responsible, there is an emerging trend toward collaboration with nongovernmental organizations (NGOs) and governmental agencies. This permits companies to leverage their own capabilities by enlisting the support of outside stakeholders. Many times, philanthropic and government funding is available to make social projects more attractive to companies.
In 2010, the International Organization for Standardization issued a guidance document on social responsibility. Called ISO 26000, it identifies seven categories of social responsibility: organizational governance; human rights; labor practices; the environment; fair operating practices; consumer issues; community involvement, and community development.
The document provides a comprehensive inventory of the topics a company needs to consider. The ISO document encourages companies to continue to move beyond legal compliance and strive for excellence. There is reason for optimism. We can hope that, over the long term, corporations will discover ways to prosper financially while at the same time advancing the common good.