How and When to Integrate Social Values into a Business

This blog was originally published on the Net Impact Blog as part of its Voices series, featuring Net Impact leaders around the world who are making a difference on their campuses and in their careers.

Expectations of business are shifting. Consumers increasingly choose brands that strive to embed positive social and environmental values and practices into their products, services and workplaces. In particular, millennials, who account for $1.3 trillion in spending power in the U.S., want to interact with and work for companies that not only focus on profit, but also deliver value to people – employees, communities, consumers – and the planet.

So if you are not yet thinking about social impact, when is the right time to start?

From day 1:

If you are a budding entrepreneur with a great idea, embed positive social and environmental values and practices into your company from the start. At the Net Impact Conference 2014 there were a number of highly successful mission-driven companies - Honest Tea, Greyston Bakery, Happy Family, and others - that have been that way from the start. It has not necessarily been an easy ride, however, these companies are demonstrating that is possible to be a successful business while also having a strong commitment to social good - there are many valuable lessons that can be learnt from them.

When you are big:

It is never too late to think about the social impact of your company but, if you leave it too long, it becomes harder and takes longer to change. At the Net Impact Conference, we heard from Paul Polman, CEO of Unilever, who talked about the multi-year journey that the company is on as part of its comprehensive Sustainable Living Plan. The process is highly complex and requires a huge amount of vision and leadership from the business, its partners and suppliers to get there. The same is true of other multinational companies such as Nestle, Pepsico, and P&G that are on similar journeys. While these efforts should be applauded and supported, if you have the choice, why wait?

So that leaves one option...

Act now as you grow:

While your company is smaller and more agile, make the shift today and embed a strong social mission and values into the business, culture and brand. It will not happen overnight but, if done in a strategic way, taking action may benefit the growth and success of the company.

Look at Chipotle. For over a decade, it has worked hard to embed its commitment to “food with integrity” into its business and brand. Earlier this year when it was forced to remove pork supplies from a third of its restaurants due to animal welfare concerns at an estimated cost of around $2 million in sales, there was no question about what action should be taken; the company knew that standing by its values was more important. CEO, Steve Ells told investors “customers are commending us for taking action against the inhumane treatment of animals, and congratulating us for standing by our business values.”

When is the right time to think about social impact? The answer is now. Whether your company or the company you work for is new, growing or more established, the sooner you take action to meet the changing expectations of today and tomorrow’s consumers, the better position the company will be in for long-term growth and success.

Send them to the Amazon

It’s the age-old question - is it possible for a business to transform itself for the benefit of society and the planet without a visionary, forward-thinking leadership team?

Patagonia's Founder Yvon Chouinard
gets it - how can we help other leaders
see the light?

I recently listened to a Shared Value Initiative webinar, which featured representatives from Kemira and Barclays Bank talking about how their companies are Innovating for Shared Value. Kemira spotted the risks and opportunities inherent in the global water crisis and changed its competitive positioning from chemicals to water quality management, a move that seems to have been beneficial to its bottom line. Barclays Bank is taking a slightly less dramatic and more experimental, though still innovative, approach to shared value, investing £25 million in its Social Innovation Facility, through which it is developing commercial products that deliver social impact.

What do both these examples have in common? New leadership taking the reins and moving the companies in the direction of Shared Value.

Of course, there were other factors that inspired the smarter approach to business – for example, consumer trust in Barclays Bank was at an all-time low following Libor Gate – however, the change of leadership seems to have been the engine behind the transformation. As Valerie Bockstette, Managing Director, FSG, noted at the end of the Shared Value Initiative webinar, “visionary leadership is a key ingredient for creating shared value.”

In some cases, it is not so much a change of leadership, as a mind-set change among the existing leadership. Take former Walmart CEO, Lee Scott, whose trip to see the aftermath of Katrina led to “Walmart mobilizing its tremendous logistics infrastructure to aid disaster victims.” It also inspired him to launch “one of the biggest corporate sustainability initiatives in history.” Coca Cola’s CEO Muhtar Kent was also inspired to take a more sustainable approach to doing business after visiting the Arctic and seeing Polar Bears struggling to find food.

So should all CEOs be sent to the Amazon? Or to the slums in Mumbai? Or anywhere in the world where they can see first-hand the material impacts of the company they lead?

The answer is yes, according to Harvard Psychology Professor, Daniel Gilbert, “when we only learn from the experience of others, this is often insufficient to drive action and behavior change.” 

To add another layer of complexity to the challenge, however visionary and forward-thinking a CEO is, if his shareholders and investors don’t play ball then he’s not going to be able to radically transform the business anyway. Particularly, as many shareholders and investors are still blinded by short term wins. A 2013 McKinsey and Canada Pension Plan Investment Board (CPPIB) study of more than 1,000 board members and C-suite executives around the world, found that “79% felt especially pressured to demonstrate strong financial performance over a period of just two years or less.”

So it seems true purpose-driven companies must have all its leaders, shareholders, investors, employees and stakeholders unified behind a shared mission to deliver long-lasting, sustainable value to the business, society and the world.

But, in the absence of visionary leaders, there’s still progress that can be made. Jim Collins, author of Good to Great, spent 5 years studying companies that made the leap from good to great and then stayed there. He found that “the real path to greatness…requires simplicity and diligence. It requires clarity, not instant illumination. It demands each of us to focus on what is vital—and to eliminate all of the extraneous distractions.”

So his response, in answer to the question “But how do I persuade my CEO to get it?” is “don't worry about that. Focus instead on results…within your own span of responsibility.”

And this is the message we need to remember. The circumstances won’t always be perfect but those of us who get it need to keep educating and raising awareness of the long-term, global, shared benefits that can be achieved.

Ruggie's Rules - The End of the Beginning

Ask the CEO of a multinational corporation “does your company respect and protect human rights?” and the answer is unlikely to be negative. But go on to ask another question “how do you know?” and you’ll probably get a much less confident response. The truth is that, until very recently, they didn't have to know. What’s more, if a problem or an accusation was filed against them, there was no international legal framework against which they could be brought to justice - existing national frameworks were inadequate or simply not relevant.

This was the challenge given to John Ruggie, Berthold Beitz Professor of International Affairs at the Kennedy School of Government and an Affiliated Professor in International Legal Studies at Harvard Law School, by the United Nations Human Rights Council – to bridge the gap between national public governance frameworks and the governance of global businesses.

Last night, I went to a talk by John Ruggie at the Harvard Bookstore, to mark the launch of his book Just Business. He talked about his approach to the challenge and his experiences of working with governments and corporations all over the world to agree a set of guiding principles, perhaps better known as Ruggie’s Rules. It became clear to him very early on that there was no silver bullet - it wasn't about creating a legal instrument and expecting everyone to adhere to it because, as we saw with the Kyoto Protocol, this would be far too easy to ignore. What was required was a ‘building block approach’, establishing a common platform (i.e. the guiding principles) and then gradually bringing organisations on-board. For example, having agreed the guiding principles, John Ruggie and his team approached national export agencies and persuaded them that, when promoting companies overseas, there should be some due diligence built into the process to ensure that they are not promoting companies who do not respect or protect human rights. This has proved to be a clever and successful means of pushing the guiding principles out into the global corporate network and a start towards changing the status quo.

As you’d expect, the guidelines have received mixed reactions. Activist organisations don’t think they go far enough with the organization Human Rights Watch saying that the UN Human Rights Council “squandered an opportunity to take meaningful action to curtail business-related human rights abuses.” Other commentators, such as John Braithwaite, Corporate Criminologist at the Australian National University, are more encouraged by the steps taken: “I’m a strong supporter of progressive UN framework agreements that seem pretty wishy-washy at first…“ in the long run they can make a huge contribution from limited beginnings.”

Whilst, I don’t believe that extensive regulation is the answer to making companies more sustainable, it is helpful to have some frameworks in place to ensure a minimum standard of practice. As John Ruggie put it last night “it’s the end of the beginning”; in other words, Ruggie’s Rules are not going to eliminate abuses of human rights by global companies over-night but they create a baseline to support companies to start answering the question “how do you know?” with confidence.

Purpose - A Unifying Force

Purpose is what everyone's talking about on both sides of the pond - and, what's great is that it's not just sustainability or corporate responsibility professionals doing the talking, it's people from all across the business world. Just today, Jock Mendoza-Wilson, Director of International and Investor Relations at System Capital Management, posted a blog called Business with a Purpose from Davos.

So what exactly is meant by the term purpose? The way I would describe it is that a company's purpose says what an organisation does beyond generating profits; it expresses the value that the company brings to the world, what the company stands for, and, essentially, why the company should continue doing what it does. A good example is Coca Cola's purpose: "to refresh the world, to inspire moments of optimism and happiness, to create value and to make a difference". This statement demonstrates Coca Cola's commitment to doing more than selling a product to make a profit - in fact, the purpose immediately establishes 'creating value' and 'making a difference' as central to the business and therefore central to generating profits.

Establishing a purpose is beneficial for motivating and inspiring employees because it makes them feel good about what they do; it encourages suppliers to build sustainable business practices into the way they do business; it builds trust and loyalty among consumers because they can see the positive impact on their lives and the world around them; and, ultimately, it helps the business chart and stick to a course that is sustainable and generates both stakeholder and shareholder value. There's some interesting discussion of this in Salterbaxter's Directions Report 2012: Profits from Purpose.

Most of all, I believe that the real power of a purpose lies in its ability to unite people at all levels of an organisation and therefore help drive change. Whilst sustainability or corporate responsibility goals have - more often than not - divided individuals or departments within a company, a purpose helps unite them behind a common cause. Everyone understands what the purpose means and how it relates to the day-to-day business operations. What's more, it can add more depth to what a company does - opening up opportunities for employees to innovate and think about how they can adapt what they do to align with the purpose - from senior management to graduate trainees.

Over the years, one of the biggest challenges has been getting sustainable or responsible business to the top of the agenda, mostly because, unless there was a key sponsor among the top decision-makers, it's often been seen as something separate from the core activities of the business. I believe that the development of corporate purposes will help to change this  - the right purpose will help drive understanding, inspire action and innovation and, ultimately, accelerate positive change. 

Making it legal but not too legal

As of January 2013, Massachusetts will enable companies to incorporate as Benefit Corporations. The Benefit Corporation movement in the USA aims to remove any legal boundaries that prevent companies pursuing their social and environmental goals. In brief, as set out in the Benefit Corporation White Paper, the characteristics of a benefit corporation are:

1. a requirement that a benefit corporation must have a corporate purpose to create a material positive impact on society and the environment
2. an expansion of the duties of directors to require consideration of non-financial stakeholders as well as the financial interests of shareholders
3. an obligation to report on its overall social and environmental performance using a comprehensive, credible, independent and transparent third-party standard

The idea for Benefit Corporations came from B Lab, a not-for-profit organisation that has developed a set of standards against which companies (rather confusingly referred to as B Corporations) could benchmark their corporate responsibility efforts, thereby demonstrating that they're not all talk. Through the development of its standards, B Lab found that companies were coming against a number of legal issues when they tried to move towards giving equal consideration to stakeholders as they do shareholders when making company decisions - 'historically, the U.S. legal system governing corporate entities and their activities has not 

been structured or tailored to address the situation of for-profit companies who seek to use the 

power of business to solve social problems'. The result was that some companies were scared of pursuing their social mission for fear of litigation for failure to maximize shareholder value. So the Benefit Corporation movement is calling on state authorities to provide a more flexible legal framework that enables companies to pursue social and commercial goals in equal measure. 

I'm interested that legal concerns have been such a barrier for American companies as this is not something that I've come across in Europe. Of course, aligning all stakeholders behind the social purpose and objectives of the business are always crucial in order to move forward but fear of the legal backlash if shareholders changed their minds or disagreed was not something we came up against - perhaps this is simply a reflection of the differences between European and US legislation. Anything that removes boundaries and gives the companies the freedom to innovate and compete to be 'better' is a good thing and the fact that it has got lots more people talking about the importance of shared value in the corporate world is positive. Just as long as it doesn't become too legal and by that I mean, stifling creativity and slowing momentum through the development of endless hoops for companies to jump through in order to meet a minimum - and ultimately rather uninspiring - standard of best practice.