Corporate Citizenship

Profiting From A Sustainable Business

A report from the Economist Intelligence Unit
Sponsored by Cisco, HP, Qualcomm, SAS and Abbott, UTC

Executive Summary

Corporate citizenship is becoming increasingly important to business sustainability. It provides benefits that are both tangible—such as reducing waste and increasing energy efficiency—and intangible—such as improved employee productivity. This report is based on the hypothesis that corporate citizenship can help to improve the bottom line.

Many firms view corporate citizenship as little more than public relations, but a minority are beginning to recognize its potential. Leading companies have moved from a do no-harm, reactive mode to a more proactive approach. For more than a decade US firms like DuPont, 3M and SC Johnson have been showing the way, using corporate citizenship as a source of competitive advantage. In recent years they have been joined by corporations like GE and Wal-Mart.

The strategy is characterized as much by a hunger for new business opportunities as by the urge to do the right thing. However, beyond a small cohort of leading companies, most US firms have yet to maximize the business benefits of corporate citizenship. They are seen as lagging behind their European counterparts. But they are catching up.

There are many lessons to be learned from the leading companies. In particular, they build on four foundations: leadership at all levels, employee engagement, solid measurements and public-private partnerships:

• To be successful, corporate citizenship must be driven from the top. But leaders of this initiative are needed at all levels of the firm.
• Significant companies find ways to channel the passion of their employees into corporate citizenship activities. Such activities help fi rms to recruit better-quality workers and retain them.
• To convince senior executives that corporate citizenship is effective, the financial benefit must be clear. Companies must set ambitious goals, along with ways of keeping track of progress towards them.
• Companies have discovered that financial advantages can accrue from forming partnerships with nontraditional stakeholders. These include local, state and federal government, as well as activist groups and non-governmental organizations.
  

Based on the lessons learned, we conclude by offering practical advice for firms wishing to use corporate citizenship in order to improve their bottom line. Suggestions include making the business case, tying corporate citizenship to core objectives, identifying the challenge and setting public goals.

Conclusions

Many of the companies mentioned in this report have been practicing proactive, bottom-line-driven corporate citizenship for a long time. For most American firms, however, these activities are in their infancy. But companies increasingly realize the importance of good corporate citizenship for building a sustainable business.

At the same time, with economic uncertainty prevailing, some companies have yet to commit themselves to incorporating corporate citizenship into their core values. They still view it as primarily an exercise in public relations. They can’t see the forest for the trees.

Other companies, by contrast, take a longer-term view. Always on the lookout for new opportunities to enhance and grow their business, they have visionary leadership at all levels, understand that the ability to engage is the best way to recruit and retain high-quality employees, develop and apply rigorous metrics, and are willing to form partnerships with others for mutual benefit.

As this report shows, visible improvements to the bottom line can be achieved through environment related issues such as reductions in waste and improvements in energy efficiency. According to the survey respondents and the other senior executives and experts consulted for this report, the following steps are recommended if companies are to profit from corporate citizenship:

1. Make the business case: “My starting point is that, unless it makes money, it’s not sustainable,” says Professor Hart. And 74% of respondents say that corporate citizenship can help to improve the bottom line at their company. This step is critical, especially during an economic downturn. “Business leaders who have not quantified the financial benefits will clearly do less, whereas those who have clearly defined the benefits will do more, regardless of the broader economic conditions,” Dr Tebo says. Survey-takers agree: among respondents who say that their corporate citizenship initiatives are very important to their company’s overall business strategy today, 52% say they will invest more money five years from now, irrespective of the economic situation.

1. Be proactive: Survey respondents who say their companies are proactive are also far more positive about the benefits of corporate citizenship. For example, 56% of respondents from proactive companies say they are stronger or much stronger than their competitors in terms of investing in corporate citizenship initiatives. For everyone else, the figure is only 32%. “Recognize that you will make mistakes, you won’t always be successful. But unless you try, you won’t be successful at all,” says Mr. Murray of Herman Miller. Cornell’s Professor Hart agrees: “As little as 5% of your investment capital could be enough to create a serious play in the sustainability area.”
2. Identify the challenges: “Ask yourself, what your Achilles heel is? What is it that you really need to focus your efforts on to improve your own performance? For energy-intensive companies, this might be the environmental footprint of your operations; for others with an Asian supply chain, human rights issues,” says Ms Rittenhouse of DuPont. “Pick five or six bold steps that are pertinent to your business,” says Peter White of Procter & Gamble.
3. Set public goals: “It’s OK to have philosophy and principles, but when you set goals, you’re serious. Particularly public ones, because once you go public on your goals, that gives you an extra incentive to meet them,” Dr Tebo says. At the same time, be honest: “Don’t advertise how well you are doing when you haven’t really got far down the track,” says Herman Miller’s Mr. Walker.
4. Measure progress: Respondents who report that their company uses metrics, such as triple-bottom-line reporting or ISO 14001, to measure the effectiveness of corporate citizenship are far more positive about their initiatives than the other respondents in the survey. Specifically, 88% of those who use metrics also say that corporate citizenship can help to improve the bottom line, compared with only 68% of all other respondents who say the same. Not surprisingly, then, 23% of respondents whose companies use metrics also report that their primary motivation for corporate citizenship is revenue growth, compared with only 13% of all other respondents.
5. Tie corporate citizenship to core objectives: Corporate citizenship remains a fringe activity, not integrated into the core values of the company. “Connect to the business, that’s the most important thing, you can’t be divorced from the business,” says Mr. Litow of IBM. Survey respondents who say that their corporate citizenship initiatives are very important to their company’s overall business strategy today also report that their profitability and revenue growth is “stronger” or “much stronger” than that of their closest competitors, at 57% and 52% respectively, compared with 41% and 38% respectively of those who do not see their strategy in this regard as very important. “It should become part of the core values of the company, not an add-on run by a corporate-relations group,” says P&G’s Peter White. Sticking to those values can be especially important during difficult economic times: “That’s what gives employees and stakeholders—including investors—confidence in the company,” Mr White continues.
6. The bottom line: “To make sustainability work, somebody’s got to articulate the financial gain that comes from the results,” says Dr Tebo. Respondents who say that their company’s primary motivation for corporate citizenship is revenue growth also say that they are “much stronger” than their closest competitors in their ability to fi nd and exploit new opportunities (20%, compared with 11% of respondents who do not say that revenue growth is their primary motivation). They are also much stronger in terms of profitability (24% versus 13%) and overall revenue growth (23% versus 11%).