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April 04, 2006
Analysis Advocates Strategic Approach to Corporate Social Responsibility
    by Bill Baue

McKinsey Quarterly provides in-depth analysis of its January 2006 survey documenting increasing executive interest in CSR, a finding correlated by an American Society for Quality poll.

Polls of the business community continue to document rising interest in corporate social responsibility (CSR). Unfortunately, they also continue to reveal significant lags in implementing commitment to CSR. Perhaps the most interesting aspect of this ongoing flow of CSR polls and surveys is the increasing depth of analysis applied to their findings.

A recent poll by the American Society for Quality (ASQ), the appointee for creating and administering the US Technical Advisory Group (TAG) for the International Organization for Standardization (ISO) 26000 Social Responsibility standards, documents rising interest in CSR. The poll of 100 business leaders from Fortune 500 companies, conducted in February 2006, also reveals significant lags in implementing commitment to CSR. According to the ASQ poll, 96 percent of business leaders think their company's CSR behavior will greatly impact the nationís economic future, but more than 40 percent still do not have any policy in place to guide their company's actions.

These findings correlate with the McKinsey Quarterly Global Survey of Business Executives, which polled more than 4,000 executives from 116 countries in December 2005. While the January 2006 edition of McKinsey Quarterly published the results of the survey, the latest edition of the publication includes an in-depth analysis of the survey findings, entitled "When social issues become strategic".

The McKinsey Quarterly analysis takes a long step beyond the statistical picture the survey paints of the CSR landscape in broad brushstrokes by filling in the details with a pointillist's eye, extrapolating the real world significance of the survey's findings. Indeed, its most striking aspect is the forceful language used to assert the vital importance of CSR.

"Business leaders must become involved in sociopolitical debate not only because their companies have so much to add but also because they have a strategic interest in doing so," state McKinsey analysts Sheila Bonini, Lenny Mendonca, and Jeremy Oppenheim. "Social and political forces, after all, can alter an industry's strategic landscape fundamentally; they can torpedo the reputations of businesses that have been caught unawares and are seen as being culpable; and they can create valuable market opportunities by highlighting unmet social needs and new consumer preferences."

The McKinsey analysis maps out the social contract businesses must honor, extending it well beyond the traditional understanding of abiding by formal laws to encompass less formal stakeholder expectations and, increasingly, "frontier" expectations that are still developing. The authors cite obesity as an example, where responsibility has shifted from individuals who choose what to eat to companies that make or sell unhealthy foods, just as the debate around tobacco shifted from individual smokers to companies' marketing of addictive products.

The McKinsey analysts also point to the role of civil society in framing expectations.

"Trust in nongovernmental organizations (NGOs), citizens' groups, and online information sources has risen as inexorably as faith in business--Enron, WorldCom--has declined," they write.

While some debate the relative merit of these NGO stances, the McKinsey analysts take a more practical approach of acknowledging the reality of stakeholder power--instead of fighting it, they recommend acknowledging it and working with it.

"We believe that the case for adopting a wholeheartedly strategic approach to the sociopolitical agenda is threefold," they say. "First, these forces can alter an industry's landscape in fundamental ways."

"Second, the immediate financial and longer-term reputational impact of social issues that backfire can be enormous," they add, citing the Monsanto (MON) genetically modified organism debacle and the Exxon (XOM) Valdez oil spill. "Finally, new product or market strategies can emerge from changing social and political forces." Think Toyota (TM) Prius.

The analysis also recommends what might seem the antithesis of competitive capitalism: namely, collaboration and cooperation. They note that Coca-Cola (KO) and PepsiCo (PEP) have experienced success through a common approach of implementing policy prohibiting the marketing of their core carbonated soft drinks to children under 12.

"As a rule, companies should consider responding on their own if they think they can capture the first-mover advantage (as BP did in acknowledging the dangers of global warming), if they are a target, or if a collective approach is too difficult or costly," the analysts state. "Collaboration can be attractive if the stakeholders regard all companies as equally culpable, if regulation is imposed on an entire industry, or if isolated, individual action would clearly destroy value."

The shifting perception of CSR is extremely significant for the ISO 26000 Social Responsibility standards, due out in the fourth quarter of 2008, which will solidify how CSR is measured and managed. The ASQ poll is a tentative first step in the direction of gauging mainstream business community attitudes toward CSR. The McKinsey analysis is a much more important bellwether of CSR, because it merges statistical data (namely the Global Survey of Business Executives findings) with real-world examples to create a more well-rounded synthesis.


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