The Dangerous New Dance as Corporations Balance Business and Social Risk

January 10, 2019

This article originally appeared on CNBC.

If you’re reading this in the C-suite, chances are, as accomplished as you are, you aren’t ready to deal with the challenges of social risk —a new set of societal issues driving business decisions around the world.

You’ve spent your entire career preparing to manage a set of risks unique to the business community. You’ve gone to school for it, built your team around it and have succeeded because you have found a way to thrive in spite of it.

But now things are different. We are seeing, at unprecedented speed, a new form of risk that threatens every executive, brand and organization – social risk. It’s time to wake up to it.

The #NeverAgain and #BoycottNRA movements took root with breathtaking speed following the Parkland school shooting. In a span of days, shooting survivors armed with a purpose-driven message and their social media accounts have reset the gun control debate. In response to public pressure, businesses have taken the lead in taking a stand while politicians stammer for words.

And consumers not only want bold actions from companies, it’s what they’ve come to expect. According to a recent global study by Darden Graduate Business School and APCO Worldwide, 94 percent of respondents believe that companies have the ability to shape a better society. Among U.S. consumer elites in an APCO study, 89 percent agreed that companies should support social issues that are consistent with their business focus and expertise.

Failure to recognize how social risk can impact a company’s bottom line can take many forms. Beyond losing market share through viral boycotts, as the labor market tightens, the race for talent is becoming more competitive than ever.

Much of that talent in question is made up of millennials, who, as employees and consumers, increasingly make decisions with purpose in mind. If you’re a CEO, CMO or CCO, you can lose a generation of talent and customers with a poorly thought through statement or mistimed tweet. More importantly, you can suffer the same loss by not saying anything at all.

The impact of action in response to social risk factors can even force corporate leaders to prioritize relationships with critical audiences. The decision by Delta Airlines to end an incentive program for NRA members received praise from some customers on social media, but it also sparked a Tweet from the Lieutenant Governor of Georgia, threatening to end the state’s tax incentives for one of its largest employers.

How can c-suites and boards of directors anticipate their social risk?

First and foremost, corporations must understand the social impact of their business model, from their supply chain, to sourcing, disposal or even the product’s impact on the public sphere. These constitute a business’ inherent negatives — latent negative stakeholder impacts inherent to a business that increase as the company grows, magnifying the company’s social risk profile.

With parcel delivery as its core business, for example, as United Parcel Service (UPS) grows so does its carbon footprint. As Facebook‘s engagement business model has grown, so has the negative social impact of fake news, resulting in a growing regulatory threat.

Social risk is obvious once virally exposed, but hard to see in advance. Anticipating social risk does not come naturally to business. The corporate cultural bubble or an insular, like-minded c-suite often obstructs the view. Guarding against corporate complacency to anticipate social risks requires proactive intervention starting at the top. Only the c-suite or the CEO can make a provocative outside-in view politically safe.

By the time you’re reading this, the next major event triggering an issue that poses a social risk to your firm might have already happened. It might be trending on Twitter, or painted across the lower-thirds of every major news channel. This means that if you’re a CEO, it’s time to wake up, take notice and be prepared to act; it can mean the difference between being a case study in failure or the model for success.

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