When it comes to company reputation, it is commonly understood that perceptions shape reality. Whether a company dealing with brand management or environmental sustainability, managing the experiences, impressions, beliefs, and feelings of stakeholders can often mean the difference between success or failure in the marketplace. This principle is the driving thought behind initiatives of corporate social responsibility.
Despite increasing discourse on corporate social responsibility (CSR) in the business community, implementation has been lacking. McKinsey published a report on why CSR has largely failed to live up to expectations. Because effective social responsibility requires the engagement of multiple stakeholders, it is difficult to coordinate efforts effectively. Effective strategic planning that intentionally involves external interests requires a strong commitment to engagement.
Corporate Social Responsibility – Easier Said than Done
While most organizations willingly pay lip service to corporate social responsibility, most struggle with effective implementation. One McKinsey survey of 238 CFOs, investment professionals, and finance executives found that most of them believed that CSR initiatives provide financial as well as social benefits by increasing shareholder values in the long-term. However, in a separate survey, McKinsey found that of the 3,500 executive respondents, only one third said their company proactively engaged regulators or other government officials. This situation is prevalent among organizations today. There is a distinct cognitive disconnect between recognized value and implementation.
There are several commonly cited reasons why corporate social responsibility initiatives have failed.
- Stakeholder Disenchantment. Often many people see any initiatives that attempt to reach out to the local community or adopt some responsibility measure as merely propaganda to boost brand image. When they hear of corporate social responsibility, they see half-hearted commitments, glossy reports, and unfulfilled promises. While it is true that many companies use CSR as an insurance mechanism, this does not preclude effective measures or authenticity. Unfortunately, however, these cynical stereotypes can sometimes bear truth. Some stakeholders perceive CSR as a cover for mismanagement of resources elsewhere, creating a culture of unaccountability by encouraging business penance to appease the public. Obviously these trade-offs run contrary to the spirit of responsibility. Thus responsible companies have to work to overcome the perception of inauthenticity.
- Limited Planning. Teams that are dedicated to CSR initiatives often narrow the focus of their efforts on select external stakeholders. Effective CSR engages a variety of stakeholders beyond immediately apparent operations. CSR initiatives should involve not only potential customers but also community leaders, activists, regulators, and legislators.
- Disconnected Strategy. CSR planning has failed to connect internal company expertise and has largely developed unrealistic initiatives. There is a subversive tendency for companies to separate CSR from traditional strategic business planning. This separation completely eliminates key sources of knowledge within the organization from the process. The result is ineffective planning on the part of those designing CSR initiatives. Poor planning exponentially increases the risk of failure because CSR becomes a distraction, not a vital component of the company’s valuation. Additionally, the disconnect between CSR and strategic planning reduces organizational buy-in. Since there are fewer individuals involved in the process, corporate knowledge becomes siloed, and specific CSR projects become tangential engagements at best. Consequently, investment is minimal and buy-in is sparse.
Engaging with Purpose
How should companies remedy this disconnect in CSR planning? McKinsey explains that integrating engagement into strategy and operations will produce results. Ian Davis argues that CSR thinking itself limits corporate engagement and should be replaced by a notion of a corporate social contract wherein companies by necessity engage the communities around them.
1. Find Your Stakeholders
As discussed above, your stakeholders are more than just your board members, your executives, and your customers. Stakeholders are also legal interest groups, communities, other corporations, and your individual employees. If an individual or group has an interest in your company or is affected by your company in any way, that individual or group is a stakeholder. To be sure, this definition of stakeholder is rather expansive, and it would be impossible for an organization to engage every single stakeholder. Thus, companies need to develop tools for finding relevant stakeholders and then determine when and where to engage them.
2. Map Out the Process and Strategy
Every element of your business influences your stakeholders. Use these points of interest to integrate stakeholder involvement and leverage their insights. This model of SCR is different from the standard model because your company is not focused on building initiatives that promote an image of responsibility. Instead you are demonstrating responsibility within your business. Such a level of transparency helps reduce perceptions of propagandizing while generating stakeholder buy-in and valuation.
In addition to including stakeholder engagement in your strategy and operations, it helps to map out a process for engagement. Find the best methods for quickly establishing stakeholder connections and maximizing their input. Ensure that communication is as symmetric as possible, focusing it on building relationships and fostering constructive, useful dialogue.
3. Embed External Engagement in Your Culture
What about your company culture? In order for any strategy to succeed, you need to generate internal buy-in among your employees. You cannot be transparent with people outside your company if you are not transparent with people within your own organization. Remember that employees and executives are stakeholders, as well. Internal transparency in turn feeds into your understanding of external engagement. Does your organization practice engagement with day-to-day business? Have you built your culture around a model that promotes external communication?
In the aforementioned McKinsey article, the author notes that a common error in external engagement initiatives is assuming that external engagement is a propaganda exercise. By “engagement” we do not mean sales pitches or glowing descriptions of a company’s virtuous attempts to help the community. Rather, the engagement process should be understood as a negotiation process with powerful, intelligent operators. Embedding engagement in your company culture helps accomplish this objective. This means that every aspect of your business requires thoughtful assessment as to how the company contributes to society at large.
4. Establish Performance Measurements
Once your company establishes a strategy and determined how to integrate it into every aspect of the business, you should build key performance indicators around these initiatives. Depending on the engagement, this might not be possible until the initiatives have been operational for a time. Eventually, however, all engagement initiatives should have established metrics. These metrics serve two purposes. First, they function as standard performance indicators that enable benchmarking and evaluate effectiveness of the initiatives. Second, they incentivize integration. By establishing metrics, your company will generate a de facto awareness among key internal stakeholders of expectations and the reality of engagement initiatives. Engagement, therefore, becomes a matter of personal investment to stakeholders.
5. Continue Engagement and Interaction
Once that initial contact is established or that one project is accomplished, the success can stifle further efforts to engage. When engagement is viewed as a project, it frequently becomes a secondary issue that is neglected. This situation is detrimental to long-term stability. In fact, sporadic engagement can become counterproductive for a company, because the company appears to be managing engagement when it is actually failing to connect. Thus the process of external engagement should not be cyclical, but continuous. Commitment among all internal company stakeholders is key here.