Corporate responsibility: Burden or opportunity?


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Corporate responsibility: Burden or opportunity?

  1. 1. Corporate responsibility: Burden or opportunity? How executives are developing corporate responsibility programs, and the impact those programs are having on corporate strategy and profitability. Grant Thornton LLP Survey of U.S. Business Leaders 15th edition
  2. 2. Table of contents Executive summary 1 Introduction 2 The current business climate 3 Corporate responsibility considered 4 What is driving corporate responsibility? 5 Implementing corporate responsibility initiatives 7 Leadership opportunities 9 Measurement and reporting 11 The role of government 14 This report is published by Grant Thornton LLP and BusinessWeek Research Services. It is not intended to answer specific questions or suggest suitability of action in a particular case. The editorial department of BusinessWeek was not involved in this project. Electronic version available To see or use an electronic copy of this document in PDF format, please visit © Copyright 2007 Grant Thornton LLP. All rights reserved.
  3. 3. 1 Executive summary Grant Thornton’s 15th Survey of U.S. • Interest in corporate responsibility issues • Executives believe social responsibility Business Leaders focuses on the topic of is unlikely to fade over time because programs may provide the greatest corporate responsibility. Conducted in activities are becoming part of standard opportunity for companies to break partnership with BusinessWeek Research business practices. away from the pack and demonstrate Services, the survey polled 510 senior leadership. business leaders. Important findings • Greater internal leadership, alignment include: and measurement are needed to derive • Executives welcome increased full potential from corporate government regulation regarding • Despite a decrease in economic and responsibility programs. corporate responsibility because they see business optimism, executives expect it as a way to ensure that everyone plays more resources will be allocated to • While some costs and resource by the rules. corporate responsibility initiatives. constraints are potential obstacles to program success, other issues, such as • Executives are supporting corporate corporate culture and measurement, are responsibility initiatives not just for equally critical. compliance or image reasons, but because they believe corporate responsibility improves profitability.
  4. 4. 2 Introduction In June 2007 Grant Thornton and This white paper provides insights and The research includes both quantitative BusinessWeek Research Services (BWRS) analysis of the study results. Specific and qualitative components: conducted a study to explore executives’ topics covered include: 1. An online survey of executives from views on corporate responsibility (CR). • Momentum and viability of corporate large and midsize companies who are Goals included assessing the current and responsibility programs members of the BusinessWeek Market desired levels of corporate responsibility Advisory Board — a panel of more than programs at companies, as well as • Impact of corporate responsibility programs on business strategies 18,000 business leaders and executives. discovering how executives perceive the A total of 510 executives across the value of such initiatives. The research also • Social, environmental and economic U.S. were surveyed in June 2007. gathered information on issues involved aspects of corporate responsibility More than a quarter of the respondents in developing corporate responsibility • Benefits of corporate responsibility were CEOs, COOs, CFOs, CIOs programs and ways to integrate them into programs and obstacles to success or CMOs. overall business strategies. • Government’s role in setting corporate 2. In-depth telephone interviews with responsibility standards senior officials at large and midsize • Best ways to measure and report companies known to be actively corporate responsibility programs involved in developing corporate responsibility programs for their companies. Survey demographics Respondent titles Company size $1B+ Directors 27% C-level executives 32% 24% $50M - $99M 42% 18% 41% Executive VPs, VPs/GMs 16% $100M - $499M $500M - $999M Industry 69% Services 31% Manufacturing Ownership 63% Public 37% Private structure Geography 27% Northeast 28% South 17% Midwest 28% West N = 510
  5. 5. 3 The current business climate To understand the true meaning and Grant Thornton Business Optimism Index impact of the study results, it helps to step points to a weaker economy back and note the state of the broader economy. 75.5 75.6 In June 2007 when the data was collected, signs were already pointing to a less stable 72.8 U.S. economy. In fact, the Grant 70.9 73.9 Thornton Business Optimism Index, a measure of the business community’s confidence taken every six months, was at 67.2 a seven-year low, an indication that hiring 68.5 68.6 and growth expectations were trending 64.1 downwards. Additional indicators during this time 62.8 supported an increasingly uneasy business climate. Stock market volatility, 59.5 widely fluctuating oil prices and real estate jitters were all emerging in early summer. 5/02 11/02 5/03 11/03 5/04 11/04 5/05 11/05 5/06 11/06 6/07 Under such conditions one might expect Grant Thornton’s Business Optimism Index is a composite measure of responses to questions on the overall spending forecasts to be lower for any economy and a company’s general business and hiring outlook. initiative not directly related to the core business. Yet the survey reveals interest and investment in corporate responsibility initiatives is expected to increase. Further, it suggests that most executives perceive that corporate responsibility initiatives will not harm profitability, and may even protect or enhance it.
  6. 6. 4 Corporate responsibility considered Corporate responsibility is a concept that How responsible should companies be? is primarily focused on accountability. It proposes that corporations should be answerable for their actions and for the Sale of safe products/Services to the public 94% impact those actions have on stakeholders, Transparency of business and financial operations 83% including consumers, employees, Safe and clean environment 80% shareholders, suppliers, communities and ultimately the global environment. Employee/Worker rights 77% Human rights 52% The field of corporate responsibility is often divided into the following three Affordable health care 43% broad categories, which have also served as Economically stable communities 41% the organizing framework for this report: Philanthropy 34% • Economic: how businesses report their financial performance and adhere to Improved education standards 34% compliance regulations and governance Adequate standard of living for society 32% • Social: how businesses affect the well- N = Varies 503 – 506 being of people in a society • Environmental: how businesses help or hurt the environment The survey probed how comfortable Benefit Index: Deriving benefits from corporate responsibility respondents were with including various items under the umbrella of corporate Benefit Index: 100 = Overall Social Environmental Economic Average benefit of corporate corporate responsibility responsibility responsibility responsibility, from affordable health care responsibility programs responsibility programs programs programs to human rights. The results show that a surprising majority of business executives Improves public opinion 195 240 227 117 believe that corporations need to step up Improves customer relations 160 226 156 95 to the plate and move the needle on many Attracts/Retains talent 114 170 78 91 of these important issues. Attracts investors 100 66 63 172 Reduces financial risk 88 31 86 150 Executives also said that the different Encourages innovation 84 56 134 66 components of corporate responsibility Provides tax credits 63 45 93 51 benefit their organizations in different ways. For example, they believe that the Improves stock price 58 28 33 113 greatest advantage of social responsibility Improves supplier relations 39 38 30 47 programs is their impact on public N = 510 opinion, customer relations and talent retention. Economic responsibility programs are most beneficial in terms of the investment community, while innovation. Surprisingly, executives environmental programs derive their believe that environmental responsibility greatest benefits from improved public programs have little effect in attracting and opinion, customer relations and retaining employees.
  7. 7. 5 What is driving corporate responsibility? While some aspects of corporate Where will the pressure come from? responsibility are mandated by law (think OSHA regulations, Sarbanes-Oxley or car emission standards), most executives cited Other 3% parties other than the government as the Executives 45% Consumers/general public greatest drivers of corporate responsibility 6% initiatives. Almost half of respondents Media 7% (45%) say that they are most likely to receive pressure to implement such Government 18% 21% Investors programs from consumers or the general N = 509 public. In addition, a fifth of respondents (21%) say that they are most likely to receive this pressure from investors. “Customers are so in tune with what companies do. They can research a company’s background to no end on the internet, and when they research, they act. So you have to be responsible.” - VP of marketing When asked what would trigger greater What encourages investment in environmental responsibility? environmental responsibility efforts, the overwhelming majority of respondents Strongly encourages Somewhat encourages Does not encourage (95%) agreed that tax incentives headed the list. Customer recognition and the Tax incentives 59% 36% 5% availability of new technologies were also Customer support/Recognition 50% 45% 5% key factors. Availability of new and innovative technologies 44% 50% 6% Regardless of who or what drives these Public health and safety issues 39% 54% 7% initiatives, executives believe Availability of alternative energy sources 38% 53% 9% responsibility correlates with profitability. Eight out of ten executives (77%) say that Global/Foreign pressure 24% 57% 19% corporate responsibility programs Sense of obligation to future generations 23% 47% 30% enhance profitability. At the same time, N = Varies 474 – 482 only three out of ten executives (28%) think that corporate responsibility programs lead to profit sacrifices. “Corporate responsibility programs are no longer PR or marketing tactics. Corporate responsibility is part of our business, because it’s what our customers are demanding.” - VP of marketing
  8. 8. 6 Looking ahead, executives say they expect Corporate responsibility is here to stay corporate responsibility initiatives to have Agree Neutral Disagree a significant role in future corporate performance: eight out of ten executives Corporate responsibility initiatives can enhance (77%) say that these programs will have a 76% 17% 7% companies’ profitability major impact on business strategies during the next few years. A far lower percentage Corporate responsibility will have a major impact (16%) believe corporate responsibility is 77% 17% 6% on business strategies over the next few years simply a business fad. Profits need to be sacrificed to 27% 30% 43% implement corporate responsibility initiatives Corporate responsibility is just another business fad 16% 22% 62% N = Varies 501 – 503 “Sure we want to look good in the realm of public opinion, but today, being responsible has quantifiable dollar and cents impact on our business.” - Director of corporate affairs Given that such a high percentage of Importance of corporate responsibility to achieving strategic goals executives believe corporate responsibility programs correlate positively with Extremely or very important to achieving 2007 strategic goals profitability, it makes sense that companies Extremely/very important are incorporating them in their overall planning. In fact, when asked whether Innovation practices (e.g., new products, services, processes) 79% implementing corporate responsibility Customer service programs (e.g., retention and loyalty) 77% programs was important to achieving their Applying and leveraging technology 73% company’s strategic goals, two-fifths of Cost containment/reduction initiatives 66% respondents (40%) said it was either Performance management initiatives 58% extremely or very important. While this Corporate responsibility programs 40% was lower than such core strategic initiatives as customer service and N = Varies 499 – 506 innovation, corporate responsibility is clearly in the mix.
  9. 9. 7 Implementing corporate responsibility initiatives The survey included questions about the Who should take the lead? Respondents disagree current way in which executives manage Social Environmental Economic corporate responsibility, as well as how responsibility responsibility responsibility responsible they feel their own companies programs programs programs are with regard to a variety of corporate responsibility issues, such as safety and CEO/President 18% 9% 7% financial transparency. It also explored Board of directors 16% 8% 10% views on who should take charge of General Counsel/Chief Legal Officer 16% 11% 7% different initiatives to optimize their CMO 12% 17% 4% impact. Audit committee 7% 7% 18% CIO/CTO 7% 12% 14% Corporate responsibility as a discipline is COO 6% 23% 5% clearly in its infancy, and this is reflected in CFO 2% 2% 28% the wide discrepancy among respondents Other 16% 11% 7% on the question of who should be tasked with implementation. N = Varies 501 – 509 Respondents were more likely to agree that a particular department or function within the organization should be involved with the different categories of corporate responsibility initiatives. When asked which three groups were most important to each type of program, nearly Which three groups should be involved in CR initiatives? two-thirds (64%) felt human resources should play an important role in social Social Environmental Economic responsibility responsibility responsibility responsibility programs, while over half programs programs programs (58%) thought environmental initiatives should have participation from Human resources 64% 12% 18% production/manufacturing. In what may Public/Governmental affairs 50% 30% 26% seem a surprisingly low result, just over Marketing 34% 17% 19% half (57%) said finance was one of the Investor relations 27% 13% 30% most important groups to be involved in Legal 25% 21% 24% economic responsibility programs. Compliance 23% 30% 23% Operations 16% 50% 19% Sales 11% 7% 16% Production/Manufacturing 10% 58% 12% Finance/Accounting 9% 7% 57% Internal audit 8% 8% 28% Logistics 3% 24% 8% Other 9% 8% 6% N = 510
  10. 10. 8 A small minority of companies have taken Companies with Corporate Responsibility Officers a different route to organizing their corporate responsibility programs: one-fifth of those surveyed (19%) said they have a single point person responsible for overseeing all of these initiatives, CRO 19% 81% No CRO regardless of what bucket they fall into. It is probably too early to tell whether having a single point person, sometimes called a Corporate Responsibility Officer, N = 504 or CRO, is a “best practice” for managing corporate responsibility, but the survey results suggest some potential clues. Respondents were asked at the beginning of the survey how responsible they Across the board, executives whose thought companies should be for 10 areas companies do not have a specific corporate that corporations could potentially impact responsibility point person consistently (see chart on page 4, “How responsible reported that their companies were less should companies be?”). responsible than those executives whose companies do have such a person. At the end of the survey, respondents were Whether companies with CROs perform asked how responsible they thought their better because they have a single point companies were for these same areas. We person, or whether companies that place then compared the responses of those who an emphasis on corporate responsibility said they had a single point person with are the ones more likely to have CROs, is those who did not. an open question.
  11. 11. 9 Leadership opportunities In four areas, more than three-quarters of “Aspirational gap” for core areas of corporate responsibility respondents felt that companies should be either extremely or very responsible. We have designated these the “givens” or Companies should be My company is very/extremely My company is very/extremely very/extremely responsible responsible (CRO) responsible (No CRO) “table stakes” of corporate responsibility: • Sale of safe products/services to the public 94% • Transparency of business and financial 80% 77% 83% 80% 77% operations 74% 69% 62% 64% • Safe and clean environment 57% 51% • Employee/worker rights When asked how well their own companies performed in these areas, there was a significant gap between reported performance and how responsible Sale of safe products/ Transparency of Safe and clean Employee/worker respondents thought companies ought to services to the public business and financial environment rights be. We’ve labeled this the “aspirational operations N = varies 503 – 506 gap.” The aspirational gap narrows for companies with a CRO. “Environmental and financial responsibility are givens for large companies. …The real opportunity for companies to be proactive and become more responsible is in improving education and health care standards. This is where we can lead, and if we invest in these areas on a social level we will help our top and bottom lines.” -VP of PR of a $5 billion computer manufacturer
  12. 12. 10 “Aspirational gap” for other areas of corporate responsibility Companies should be My company is very/extremely My company is very/extremely very/extremely responsible responsible (CRO) responsible (No CRO) 57% 56% 52% 55% 53% 52% 46% 45% 46% 43% 41% 42% 36% 36% 37% 34% 34% 32% Human rights Affordable health care Economically stable Philanthropy Improved education Adequate standard communities standards of living for society N = varies 503 – 506 Beyond the table stakes, however, the In these areas, executives felt their story looks somewhat different. In six companies’ performance exceeded where other areas, significantly fewer executives it ought to be — in other words, the agreed that companies should be aspirational gap reversed itself — and once responsible: again, companies with CROs performed • Human rights better. For example, only 34% of executives felt that companies should be • Affordable health care extremely or very responsible for • Economically stable communities philanthropy. Yet 39% (36% of those • Philanthropy without CROs and 53% of those with CROs) said their own companies were • Improved education standards extremely or very responsible in this • Adequate standard of living for society regard. Public perception is that companies have done well over the last seven years; companies have cash and profits. The public is looking more towards corporate America to help with social programs such as education, health care and community development.
  13. 13. 11 Measurement and reporting As companies move to adopt and Companies producing sustainability reports formalize their corporate responsibility initiatives, measuring results is likely to become an increasing topic of discussion. Already produce for Furthermore, governmental regulation in 11% internal use areas such as financial reporting and environmental safety will create new 18% Already produce benchmarking standards. No plans to produce 55% and publish externally 6% Will produce this year Groups have already emerged with 8% corporate responsibility reporting Will produce within 3 years frameworks. Probably the best known is 2% the Global Reporting Initiative Will produce within 5 years N = 483 (, whose Sustainability Reporting Framework helps companies assess their performance in all three areas of corporate responsibility. To date, however, many of the corporate Despite the value of sustainability reports responsibility reports published — often as communications tools, less than a third referred to as “sustainability reports” or of companies (29%) surveyed produce “triple bottom-line reports” — are them, either internally or externally. informal accounts that use homegrown Over half of executives (55%) say their metrics and case examples. Companies companies have no plans to publish that produce sustainability reports such reports. consider them a means of communicating their core values to investors, customers and other stakeholders.
  14. 14. 12 Which metrics should be used to measure corporate responsibility? Should definitely Should probably Should probably Should definitely be used be used not be used not be used Compliance with environmental laws 64% 32% 3% 2% Conservation efforts 41% 49% 8% 2% Health and safety investigations of products and services 46% 43% 9% 2% Rates of employee injuries and work-related fatalities 40% 46% 12% 2% Fraud or corruption convictions 50% 35% 12% 3% Energy consumption 37% 46% 14% 3% Greenhouse gas emissions 38% 45% 11% 6% Training provided to employees 28% 52% 18% 2% Human rights of foreign subsidiaries/suppliers 29% 48% 18% 4% Economic value generated by a company 30% 46% 19% 5% Organizations or causes to which company contributes 20% 45% 25% 10% Male-female salary ratios 15% 34% 36% 15% Number of lawsuits 11% 31% 41% 17% N = Varies 482 – 485 One reason some companies are on the fence with regard to sustainability reporting may be confusion and indecision over appropriate metrics. When asked what criteria should be used to assess corporate responsibility, “compliance with environmental laws” and “fraud/corruption convictions” were the only two that a majority of executives said should definitely be in mix.
  15. 15. 13 With the exception of financial reporting, Expectations for mandatory corporate responsibility reporting corporate responsibility reporting is not mandatory. However, two-thirds of those Environmental responsibility reporting surveyed (68%) say they expect environmental responsibility reporting Never will be mandatory within the next three to five years, and a third (35%) think 10% reporting on social responsibility will be required. 34% Within the next 3 years Within the next 10 years 22% 34% Within the next 5 years Social responsibility reporting Within the next 3 years 12% Never 36% 23% Within the next 5 years 29% Within the next 10 years N = Varies 492 – 497
  16. 16. 14 The role of government Almost three out of four executives (71%) Should government be more active in encouraging corporate responsibility? believe that consistent corporate responsibility standards are needed in Strongly disagree order to level the playing field among companies. One way to achieve such 9% 17% Strongly agree standards is through government Disagree 16% involvement. In fact, the survey results show that the majority of respondents 36% Agree (54%) believe that the government should Neither agree nor disagree 22% become more active in supporting and encouraging corporate responsibility N = 501 initiatives. You really need government standards around environmental responsibility. Environmental impact is somewhat of an art depending on the science or math that you use. This is where the government can help — just set the baseline and if companies want to exceed it, it becomes a competitive advantage. - CMO
  17. 17. 15 Beyond supporting corporate Should government regulate companies for corporate responsibility? responsibility, many respondents actually felt that government should step in and regulate it. They felt more regulation is Their effect on the environment warranted in environmental areas than in social areas, perhaps because of the importance of setting baseline standards. Yes Maybe 15% 72% Regardless of how they feel about No 13% government involvement, many agree that more regulation is inevitable. About a quarter of respondents expect more regulation around social (28%) and economic (26%) responsibility within the Their effect on human rights and labor practices next five years, while 70% believe we will see increased government regulation of environmental responsibility. Yes Maybe 22% 56% No 22% Their effect on the communities in which they operate Yes 35% Maybe 25% No 40% N = Varies 501 – 503
  18. 18. 16 Despite these attitudes, executives said corporations must lead the way in they don’t want the government to working toward the sustainability of the become too controlling, restrictive or planet; only four in ten (44%) believe that stifling. Many executives believe that legislation and governmental policies companies can avoid excessive ultimately drive corporate responsibility. government intervention by being It is this attitude that may truly reflect the proactive in their responsibility efforts. future of corporate responsibility: more This is evident from the emerging and more companies taking the bull by the consensus that companies, not horns, setting the agenda and developing government, will make the biggest solutions for the knotty issues that difference. As noted earlier, eight in ten impact our society and our world. executives (77%) believe that “The best way to keep government regulators at bay is to do it yourself; don’t make them impose their perception of what people want in terms of social and environmental responsibility. The government has a unique way of misinterpreting what people want and turning it into policy. Companies do a better job of gauging what people really want and are better at providing it.” - CMO
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