Performance data increasingly demonstrate superior long-term financial results from companies taking action on Social, Environmental and Governance (ESG) factors material to their business. Profit and purpose are not mutually exclusive.
But an authentic corporate purpose must reside in strategies embedded in the company’s business itself. A company’s social footprint—the social impact of the way it does business—expands as the company grows. If that impact is positive, it can be a powerful competitive differentiator for attracting investors and its next generation workforce. If that impact is negative, outrage will follow, disrupting business at the speed of thought in today’s new social landscape.
As public concern about the coronavirus is demonstrating in real time, web-empowered stakeholders vigilantly judge the company behind its products or services. Actions taken, not pledges made, are their proof of authentic corporate character. In fact, actions are the message. Building trust and engaging stakeholders have never been more important.
Consistently acting on corporate purpose, however, is complicated. In addition to competing stakeholder expectations, corporate social impacts—positive and negative—often hide in plain sight. Absent explicit intervention to critically examine the corporate social footprint, the insulating power of a corporate culture will overlook profitable growth opportunities or muzzle a politically safe “speak up” culture to anticipate risk.
Breaking through those cultural blind spots requires an outside-in perspective that can be quietly positive or virally destructive:
Quietly Positive: Waste Management’s customers were the outside-in source for the company’s discovery of an overlooked new revenue stream embedded its core competency. Rather than growing its revenue exclusively through an increasing volume of customer-generated waste, Waste Management discovered a hidden opportunity when customers sought its expertise to reduce the amount of waste they generated, turning Waste Management’s business model for generating profit on its head. Waste Management listened. Its stock nearly doubled between 2012 and 2016 over the previous five years after the company added waste management consulting to their product offering, unlocking a new, profitable business opportunity with positive social impact.
Virally Destructive: Sexual harassment in the workplace was a private reality for many businesswomen of all ranks for decades. Only the external intervention of #MeToo made it a legitimate, public discussion, leading to more than 200 executives losing their jobs in one year, shareholder and class action lawsuits, and most recently, Harvey Weinstein being sentenced to 23 years in prison.
These examples illustrate two key characteristics for assessing whether your corporate purpose is embedded in your business. First, ask strategic questions on social impact at the front end of business planning. Don’t wait for that impact to be virally exposed. Second, integrate external insights and capabilities with internal expertise. Institutionalize an outside-in perspective to capture overlooked value and mitigate unforeseen risk.
Here are five social impact questions you should ask to assess if your company’s corporate purpose is embedded in its way of doing business.
1. Does your company leverage its core competencies to innovate profitable business strategies that also benefit society? Applying innovative design thinking to a core competency can flip mitigation (doing “less bad”) into opportunity (doing “more good”), comparable to Waste Management’s strategic pivot. Eastman leveraged its core competency—chemical engineering—to advance a new technology applied to one of the most problematic waste materials in U.S. landfills—the three billion pounds of post-use carpeting sent to landfills annually. Eastman is now collaborating with an external partner, Circular Polymers, to collect post-use polyester carpet as a feedstock for Eastman’s carbon renewal technology, producing new materials with certified recycled content. Producing profitable new materials sourced through the circular economy benefits both Eastman’s business and society.
2. Does your company conduct a social impact assessment (opportunities and risks) aligned with corporate purpose as a decision criterion for material capital investments like site selection, new product development, new market entry or acquisition target? Shell Oil requires a Non-Technical Risk Assessment (NTR) prior to approving capital for a new site. Shell managers move into a prospective site community, getting to know stakeholders and their concerns. Their assessment of the “non-technical” issues at the site becomes a deciding factor for a go/no go decision. According to Shell, overlooking this kind of social impact assessment is “the most common cause of project delays and most likely to be underestimated and overlooked but have the most potential to cause significant erosions of project value.”
3. Does your company know the social footprint of its full business lifecycle? Recognizing that 85 percent of post-use clothing ends up in landfills, in 2018 outerwear company the North Face focused on the back end of its products’ lifecycle by selling refurbished outwear from clothing returned to the company. In late 2019, the company flipped its focus to the lifecycle’s front end: new designs for longer lasting products. Partnering with circular design specialist Renewal Workshop, North Face designers attend workshops multiple times annually to study returned or damaged clothing for new designs that extend new clothing’s lifespan. The result: a new product strategy that also benefits society.
4. Is social risk integrated into your company’s Enterprise Risk Management (ERM) process? Often, ERM is focused on externalities like global economic trends, cybersecurity and changing demographics. Yet, even in the reality of the coronavirus crisis, headline-producing crises are more often caused by actions within management’s control. For example, Wells Fargo’s sustained financial erosion originated from policies entirely within their control for acquiring new accounts. To breakthrough these blind spots, companies are incorporating external counsel through strategic advisory panels and integrating external advisors into their strategic planning and risk assessment.
5. Through executive leadership and culture, do you make it politically safe for employees to “speak up” to anticipate not only what could go right but also what could go wrong at the front end of important decisions? Asking inconvenient questions does not happen naturally in a corporate culture. It requires leadership role modeling and rewarding that behavior to make it politically safe. Divergent, dissident voices are critical for growth and innovations.