All in CSR and Transparency

I was delighted to discover today that McKinsey & Company agrees with me about the reputation challenges facing companies globally and the new approaches needed to meet those challenges.

Okay, maybe I am not given credit anywhere in the McKinsey Quarterly article called Rebuilding corporate reputations (registration required). Yes, I know others have been saying the same thing for a number of years. And native humility prevents me from claiming anything more about my contribution to these discussions among public affairs specialists. But it was satisfying nonetheless to read that the consultants in McKinsey & Company's strategy practice ALSO agree there are three changes profoundly altering the reputation management landscape:

"Those changes include the growing importance of Web-based participatory media, the increasing significance of non-governmental organizations (NGOs) and other third parties, and declining trust in advertising."

Add to this the recognition in the report that traditional media relations strategies alone are simply inadequate to deal with dispersed opinion shaping never mind stakeholder expectations for participation, dialogue and transparency, and you have the skeleton of most of what many of us who advise companies on reputation management have been clamoring about for a number of years.

Perhaps now that McKinsey & Company has said it senior executives will be more disposed to our strategies.

At a recent 1/2 day session called Corporate Social Responsibility and the Corporate Brand, Dr. Jay Handelman, associate professor of marketing at Queen's University School of Business, argued for CSR taking a central strategic role in a company's branding efforts. His point of view is that "In order to survive and thrive, a company must tend to the expectations of societal stakeholders that extend beyond a company's obligations to its owners or shareholders."

To some extent companies have no choice. The corporate social context has changed . . . there are more active anti-corporate social forces able to organize themselves using digital technology in all its populist forms, popular culture is progressively more alert to democratization, company shareholders are multi-dimensional (with values driven by their roles not just as investors, but consumers, citizens, family members, and human beings motivated by emotions and ethical viewpoints), young people are coming into business with different cultural markers. In essence the corporate brand is now actually a "socially-owned" brand.

If you accept these arguments, CSR therefore can't be reduced to a tactic for improving corporate reputation in the interest of hiring the best talent (although evidence exists that talented prospects prefer to work for socially responsible companies), reducing risk, increasing employee productivity or buying goodwill. CSR will have to become a key strategic element in managing the corporate brand. And the corporate brand itself, because it lives in the world and not in a corporate boardroom, will have to be thought of, as Dr. Handelman says, as the product of "brand journalism; that is, a narrative or a chronicle."

The implication is that companies will have to help solve social problems, especially if they have caused those problems. This extends to taking responsiblity for the environmental, social, health and economic impact of its operations, rather than assuming that throwing money at philanthropic projects will buy support. Companies will have to create social value while managing what Dr. Handelman calls "legitimacy" by "blending in with societal values, simultaneous disavowal of commercial motives, and third party confirmation."

As a model, he points to Ray Anderson, CEO of Interface Inc. in the United States, a manufacturer of carpeting and other upholstery. Take a look at the company's vision . . . "To be the first company that by its deeds shows the entire industrial world what sustainability is in all its dimensions: People, process, product, place and profits -- by 2020 -- and in doing so will become restorative by the power of influence."


An interesting set of questions is raised in SRI Notes about the effect of defining a company's shareholders differenly than the traditional hypothesis that they are a company's "owners" and, therefore, entitled to its earnings (usually in the form of a dividend) after expenses and profitable re-investment. The hypothesis is used by those opposed to investment in responsible corporate conduct or philanthopy to argue that a company's earnings rightfully belong to its shareholders and that it is irresponsible of management to "spend" on financial and strategy intangibles like corporate responsibility programs and community investments.   

In SRI notes, Lloyd Kurst from the University of California at Berkely's Haas School of Business writes that "Miller & Modigliani's famous theorem opened the doors to a broader view of capital - a view in which shareholders are not owners but suppliers of a commodity known as equity capital."

As suppliers of equity capital shareholders are entitled to reasonable compensation for their investment (the product they 'supply'). But they do not de facto have unrestricted access to all of a company's earnings available for distribution. This means that non-financial stakeholders such as employees and communities which give companies the right to use their resources may have at least some claim on distributable earnings.

Frankly, it puts on another level the discussion in corporate theory of the legitimacy of investment in social intangibles. It raises questions -- even doubts -- about Nestle CEO Peter Brabeck-LetMathe's assertion that in corporate philanthropy "We need to be very careful, because it is not our money we're handing out, but the money of our shareholders."

First a mild mea culpa. . . In the description of my intentions for this blog, I make reference to "transparency" as one of its themes. It's been recently pointed out by an associate -- Doug Walker -- that I haven't defined the concept or explained my interest. In fact, I don't think I have said much at all about it. So, here is transparency '101'as I see it . . . with help from the seminal book on the matter by Tapscott and Ticoll called  The Naked Corporation: How the Age of Transparency Will Revolutionize Business and from my own notes from a course I teach for Royal Roads University's M.B.A. program in public relations.

Researcher (and now nascent author with Don Tapscott of a new book possibly to be titled Wikinomics: How Mass Collaboration Changes Everything) Anthony Williams says that transparency is often associated with the global trend toward openness driven by new information and communication technologies, the spread of democratic norms, and the growing influence of civil society. With respect to a company’s relationships with its publics, I think transparency is best understood as:

  • Making available information relevant to stakeholders and others in their evaluation of corporate conduct and corporate performance.

According to Williams, Tapscott and Ticoll, what people are looking for when they talk about corporate transparency is evidence in corporate behaviour of "openness, candor, commitment to dialogue, willing problem identification, willing problem resolution and a promise of values-driven decision making." Transparency, then, isn't a program, a board function, or a task assigned to the CSR department: It is a method of:

  • Engaging with shareholders and stakeholders
  • Governing an entity
  • Dealing with those affected by the entity's decisions including employees

Now that I think about it, blogging -- when used well (like Dell is doing right now with its battery recall crisis) -- is actually an efficient and potent tool for transparency. 

A friend of mine, Alexandra Samuel, who introduced some in H&K's Toronto office to the finer points of online discourse through something called "dialogue panels", has launched a new venture based out of Vancouver called Social Signal. The intended goal of this small consultancy is "to support online communities and distributed collaboration networks — networks of communities that share content and relationships by using the latest generation of web tools."

Don't get me wrong here. I am not touting for a competitor. However, Alexandra's premise is instructive for all of us. Her thesis is that the most effective social movements and activist campaigns are bottom-up, decentralized and participatory. Not coincidentally, new web tools -- collectively called Web 2.0 and including such things as blogging, tagging and RSS -- also facilitate this type of communication. Explains Alexandra, "What’s exciting about Web 2.0 — yes, we really need another name for it! — is that it offers the technological infrastructure for decentralized, bottom-up, participatory collaboration. Instead of creating another community group to compete for foundation funding, like-minded members of existing community organizations can use a wiki to develop a joint proposal. Instead of distributing government surveys, public servants can access spontaneous, focused feedback by aggregating blog-based policy discussions. Instead of focusing on fundraising in order to pay campaign staff, activist groups can create far-reaching information campaigns that are powered by their members’ RSS feeds."

I have often argued (usually unsuccessfully I am afraid) with clients and at speaking engagements that social activists and advocacy groups are well ahead of most companies in the use of digital technologies to structure campaigns. But, I'll argue again, corporate public engagement strategies, essential for many natural resource, telecommunication and waste management companies, should take a page from the social activists who are finding new inexpensive and effective ways of facilitating collaboration and discussion and organizing around areas of concern.

What I like about the condition of discussion on the merits of socially responible investing is its movement from the realm of the advocates to the ambit of economists, investment advisors and financial analysts . . . people inside the tent of corporate finance.

Lloyd Kurtz, for example, is senior portfolio manager, Nelson Capital Management and connected to the University of Berkeley's Haas School of Business. He writes clearly and non-dogmatically about socially responsible investing, in his words not a light topic. . . “Social investing isn't an easy subject to study. It involves management science, investment theory, and economic analysis.

Not long ago he reported on his own research into what makes a "responsible" company (in an effort to find a definition of corporate social responsibility). His model group ended up being big companies, usually un-unionized, mostly consumer-facing, with a strong brand as well as historical growth rates, reinvestment rates, and market expectations for future growth (P/E and P/B ratios) above market averages. (Responsibility pays?)

Recently he also posted that Steven Levitt -- he of the blockbuster, and eminently readable, Freakonomics -- has entered the discussion about SRI. To save you going to the full post  here is what Levitt had to say in his typically succinct manner:

"What’s totally obvious to anyone except an economist, probably, is that people aren’t good or bad. It depends on the circumstances that you put them in. And people can be very good if they have the right set of incentives in front of them, and they can be very bad when the wrong incentives are put in front of them. As an organization, you can come up with the right incentives, the right circumstances, to make people do the right thing, or to make them do the wrong thing.” 

Disciples of Milton Friedman . . . watch out.

Sometimes I wish I lived in Vancouver . . . not for the mountains; although I am an aging mountain biker. Not for the restaurants; Toronto's are better. Not for the hockey; I will be a Leafs' fan until death. I just think it would be agreeable and refeshing to live closer to the heartland of leading ideas for digital community engagement.

For example, I could just drop down to San Francisco on May 25th to take in the Online Community Camp at the Ft. Mason Conference Center and exchange some ideas about social software. I could learn a lot from a planned session on "using online communities to enhance interaction within physical communities like neighborhoods, towns, and cities", (although the camp's model is such that the day's sessions are only determined on the morning of the conference . . . by discussion among participants!) 

Many corporate and government agency community consultation programs could benefit from digital alternatives to the traditional town hall/focus group/phone survey models. This might be the place to figure out how.

Then there is the Online Community Summit 2006 in Sonoma, California in October. Oh well . . . only dreaming.

Day two of the CBSR conference began with a pull-no-punches presentation by Alex Neve, secretary general of Amnesty International Canada. His message is simple . . . voluntarism in addressing human rights issues doesn't work; you need legally binding minimun standards of behaviour. Neve's argument is that the world requires laws, oversight committees of experts and courts to bring those who violate human rights (including business executives) to justice. As for why business should support this point of view, Neve argues that regulation will provide the corporate world with "clarity, common expectations, predictability and participation".

I think there is greater merit in the model presented later in the morning by John Morrison of the Business Leadership Initiative on Human Rights and John Sherman III of National Grid, a corporate supporter of the initiative (as is Hewlett-Packard) headquartered in the UK but with operations in the US. The goal of BLIHR is to "explore the ways that human rights standards and principles can inform issues of corporate responsibility and corporate governance" and it intends to develop tools that will assist business in implementing the set of norms contained in the UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (called in CSR circles 'The Norms' . . .thankfully).

In other words, there is a pathway to encouraging responsible business behaviour with respect to human rights that runs between voluntarism based on promises that may or may not be kept and regulation interpreted and managed by inflexible, ideologically driven bureaucrats . . . that pathway is to offer guidance in how to integrate human rights considerations into core business activities and decisions. The 'Norms' say what should be done: the BLIHR -- which is a business-led initiative -- will say how it can be done.

There are two ways to look at one set of numbers from the MORI/Hill & Knowlton's global survey of financial analysts -- Return on Reputation: when asked the question Which of the following non-financial elements contribute to your assessment of a company's value?approximately 93% of respondents identified "transparent disclosure and strong governance", second only after "execution of company strategy".

That's good news for those of us -- Don Tapscott and David Ticoll included -- who argue that transparency has, and will, become a driver of corporate reputation. To the same question, however, only 22.0% of respondents identified "social responsibility and community involvement" as non-financial elements affecting their assessment of a company's value, which is dispiriting news for those of us -- like Lynn Sharp Paine, author of Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance -- who believe that corporate behaviour will influence financial performance.

Does that just make financial analysts a tough crowd or are there still strong doubts about the putative causal relationship between poor corporate performance and weak social conduct? 

I have recently added a blog to my blogroll on socially responsible investing. This blog "salon" called SRI Notes features contributions by a number of writers, although the lead blogger appears to be a portfolio manager based in Palo Alto, Calfornia named Lloyd Kurtz. A web page under his names connects to the Center for Responsible Business at the University of Calfornia (Berkeley) Hass School of Business.

Both Mr. Kurtz's blog and the Center for Responsible Business feature useful discussions and links to studies on the impact of responsible behaviour on financial performance. For example a recent study out of Erasmus University by a host of professors/students finds that environmental information, as contained in the Innovest environmental rating system, was related to firm financial performance and mattered for firm valuation during the 1996-2002 period.

Citizen journalism is becoming synonymous with blogs by professional journalists, reformed hackers and political pundits. This is unfortunate because true citizen journalism is something else . . . something more valuable in tracking mood and opinion about issues.

Ordinary people are writing - often very well - about their experiences of political issues in their country, confrontations with unique social challenges, concerns, disatisfactions and criticisms. Some that I track provide a unique counter-balance to mainstream media presentation of societies and cultures, and the political views of people in countries we don't consider friends.

Take a look at a blog by a young Egpytian titled "Rantings of a Sandmonkey" (Apologies to those who this title may offend . . . but it is his alias. And,a strong warning, it includes some explict language that may also offend.) His recent post uncovers local news about the Iranian police removing mannikins from stores because they are too sexually suggestive. An earlier post talks about a candlelight vigil he and other friends organized to express the following .. . "We are a group of Muslim kids who feel awful about what happened in Alexandria. We feel that we are all Egyptians here and that we shouldn't let religion divides us the way it does. So we figured we would start the vigil to express our sadness at what happened and our solidarity."

A different perspective on Egypt, and possibly closer to the "street" truth than network television reports?

I am attending a conference in Toronto organized by Canadian Business for Social Responsibility called Human Rights: Everyone's Business. A two day conference, today's agenda included one panel on which three of the four panelists were H&K clients . . . Lynn Anderson, VP marketing, enterprise & alliances at Hewlett-Packard Canada , Siobhan Cavanaugh, director, health and industry policy planning at Merck Frosst Canada Ltd., and David Maddam of Talisman Energy.

As interesting as this panel was, I am afraid the speakers were trumped by the lunch keynote address by Dr. Walter Reid (Stanford University), director, of the Millennium Ecosystem Assessment, an international process designed to provide scientific information concerning the consequences of climate change for human well-being and options for responding to those changes. Dr. Reid made the contentious and thoroughly defended statement that the debate over global warming is over. Both the MEA study and one undertaken by the Inter-Governmental Panel on Climate Change (together involving 2000 scientists from 90 countries) agree that 60% of our ecosystems have been degraded since the 1980s. Dr. Reid pointed out that CO2 is now at 380 ppm globally, the highest level in 400,000 years (as tested through bubbles found in geological formations), and that the four of the five warmest years on record have occurred since the year 2000. Making the link to the conference theme, Dr. Reid argued that the poorest areas of the world suffer the most, from drought, water degradation, and disappearing fish and wildlife habitats. He also said, however, that the impact of global warming can be reversed, but it will require business not only to recognize and mitigate the impact of its operations but also to develop new environmental technologies in the realm of ecosystem services.

Tomorrow I will report on day two of the conference which features such speakers as Alex Neve, secretary general, Amnesty International Canada and John Morrison director, Business Leaders Initiative on Human Rights (BLIHR).

A new website has added an arrow to the quiver of individuals who want to organize a cause, a campaign, a social event, even a music gig. Yesterday, Dan Gillmor drew his reader's attention to Pledgebank which is a way to "aggregate pledges into a critical mass that makes a difference." Says Gillmor, "It's brilliant, bottom-up and potentially a world-changing effort." The basic idea is that anyone who wants to do something about something, but is afraid to do it alone, posts a pledge that he or she will undertake the action if a specific number of people 'pledge' to join. Current pledges for Canada include this one . . . "Andrea Wiggins will donate $10 to Kyle & Rebecca's New Orleans archive reclamation project but only if 49 other people will too. (25 days left, 25 more signatures needed)."

Here are two successful pledges from Canada that hint at the reasons we should pay attention . . .

A short audio introduction to the concept by Tom Steinberg -- head of the organization MySociety which builds community-oriented web sites -- can be downloaded at Pledgebank.

At a presentation on blogging and citizen journalism I gave last week at a media relations conference, I was surprised first of all that only one person in the room was a blogger and second that no one, even the experienced media relations experts present, had really given much thought to the impact of citizen journalism on news making, on patterns of information exchange , and on company/individual relationships, trust, connectedness and transparency. Since infomation, perception, relationships and influence are at the heart of news reporting -- and what public relations professionals do -- I would think we should have a point of view. So, here are some idea triggers:

Jeff Jarvis . . . "No one owns journalism. It is not an official act, a certified act, an expert act, a proprietary act. Anyone can do journalism. Everyone does. Some do it better than others of course. But everyone does it."

Richard Craig (assistant professor of journalism and mass communications at San Jose University) . . . "Good reporting is generally self-evident, and it is not necessarily the exclusive property of the journalism industry."

For those who read books, journalist Dan Gillmor's book We The Media: Grassroots Journalism by the People for the People (which can be downloaded free for personal use) is a great introduction to the concepts and issues. And Reporters Without Borders has a short book -- available as a .pdf, again free -- called Handbook for Bloggers and Cyber-Dissidents from which issue managers can learn a great deal about how citizen advocates can organize dissidence online.

Alan Murray, assistant managing editor of The Wall Street Journal, wrote a piece last week (September 14, 2005) that began like this: "The last time I wrote skeptically about corporate social responsiblity, I received a curt email from my mother. 'So,' she wrote, 'corporations shouldn't be socially responsible.?"

Having read the article -- which is really about the "terrorist" tactics of an anti-animal testing advocacy group -- I am still on the side of Mr. Murray's mother. Mr. Murray does a good job of demonstrating that if we held NGOs to the same responsibility standard as corporations many would fall far short. But that's not the point, no matter how egregious the behaviour of NGOs. The public, including Mr. Murray's mother, increasingly expect responsible conduct, even if that is vaguely defined. And there is a market for virtue, even though it is still tenuous and limited at the moment. Points of view that shift attention away from encouraging companies to define responsible conduct or virtuous behaviour for their industry and their enterprise only prevent these companies from taking control of an agenda that shouldn't be left in the hands of NGOs driven by ideology rather than true public interest.

In preparing for reasonable -- rather than breathless ideologically motivated - debates about the value of CSR programs, it is helpful to be armed with research and sound academic analysis. I would love to hear from others about books and websites that provide well-reasoned arguments -- pro or con -- for the role that CSR programs should play in an organization's business strategy. Here are a few of my stalwarts . . . Lynn Sharp Paine's Value Shift - Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance, Tapscott and Ticoll's The Naked Corporation, David Vogel's The Market for Virtue (which I have just started reading), and part two of Fritjof Capra's The Hidden Connections. For web sites, I would link to Canadian Business for Social Responsibility, the World Business Council for Sustainable Development, and The Global Compact . . . and I would keep going back to Echo Research's website because the company has produced some interesting research on CSR.

Both my kids are in the Bachelor of Commerce program at Queen's University in Kingston, Ontario, considered one of the best undergraduate business education programs in Canada. Neither son has -- yet -- signed up for the business school's Certificate in Corporate Social Responsiblity. To be frank, I don't expect they will. The course involves participation in three 'CSR weekends' over the four years of the undergraduate program and a variety of other evaluated community-based activities. But the question for them and other business students will be Will this help me get $50,000-a-year entry level position on graduation? I think they'll answer no, and I won't blame them. While most companies in Canada at least mouth the CSR mantra, and many produce detailed CSR reports, it is a moot point how deeply embedded in today's business leaders is the concept of companies acting responsibly in the social, environmental and economic spheres. If not pushed by a mistrustful public and advocacy groups and citizen journalists demanding transparency, would many of our business leaders simply step away from investments in transparent governance, community philanthropy, and environmental damage control and repair? I don't know. But I suspect the level of take-up of Queen's CSR certificate by tomorrow's business executives, may be a leading indicator.