Laggards or Leaders?

December 2007

Two new publications from The Center - the book Beyond Good Company: Next Generation Corporate Citizenship and the newly released 2007 State of Corporate Citizenship - provide insights into how American companies view corporate citizenship.

Beyond Good Company provides a big-picture overview of next generation citizenship, drawing on Center interviews with CEOs and other top leaders, national surveys, and select case studies. The book concludes with a challenge to business, acknowledging that corporations have the ingredients of power, resources, and global reach, but no consensus among top executives about if, when, and how to use them.

The 2007 State of Corporate Citizenship Survey also finds positive attitudes about corporate citizenship among U.S. business leaders, but concludes that they are not yet matched by positive actions.

In the end, both publications pose the same question: Will American companies be laggards or leaders on corporate citizenship?

The 21st century business environment is posing significant new challenges. As the American social contract frays, the public is looking to business to play a greater role in society. This includes business not simply taking more responsibility for its own economic, environmental, and social impacts, but also business action to help address broader social issues.

After a decade of record profits and economic expansion, most Americans feel that businesses can and should be doing more.

While wages have remained flat, executive compensation has soared and stories of corruption, options back-dating, and risky ventures such as sub-prime mortgages fuel the perception that business is not doing its part.

The 2007 State of Corporate Citizenship Survey demonstrates that most business leaders understand the scope and scale of the challenge ahead. Sixty percent of business leaders agree that the social contract in the U.S. is either broken or fundamentally flawed. Almost all executives agree with the public that operating ethically and treating employees well and fairly are key responsibilities for business. Most believe corporations, not government, should be responsible for ensuring their products and operations do not harm the environment.

On social issues such as protecting human rights and reducing poverty there is a greater gap between public and business leader perceptions. Business leaders must now learn to manage these growing expectations as the American social contract changes.

Get Real

The greatest challenge for corporate citizenship in the United States is to move beyond aspiration and rhetoric to action.

While executives say corporate citizenship is a key strategic issue for them, far too many companies still equate citizenship with philanthropy and not the way the company conducts its business. With some notable exceptions such as GE, Timberland and Seventh Generation, relatively few have begun to tackle the hard challenge of integrating corporate citizenship principles and practices across the company and adjusting their business model to meet the challenges of the new operating environment. Others are making strides in one or two key dimensions of corporate citizenship - such as Wal-Mart and their relatively new environmental sustainability strategy - but are falling short of an integrated and comprehensive approach.

Be More Relevant

Globally when it comes to corporate citizenship, U.S. companies are increasingly at risk of falling behind competitors. Corporate citizenship and social responsibility are more rapidly becoming major components of the competitive context from Europe to Asia and Latin America.

A majority of American businesses are ill-prepared to meet global expectation. For example, according to recent studies, 40 percent of U.S. companies that manufacture or import to the EU have not started to prepare for the new European REACH environmental regulations. The costs in terms of fines, lost market share, and damaged reputation could be significant.

With many indicators pointing to an economic slowdown in the U.S., corporate America may also find itself at a political disadvantage as distrust of business and globalization fuel political momentum for protectionism and greater regulation.

Be More Responsive

Like the quality movement in the early 1970s, corporate citizenship is rapidly becoming a defining business issue for the 21st century. In a world where large companies can have more than half of their brand value tied to reputation, corporate citizenship now eclipses products, innovation, financial performance, workplace practices, governance, and leadership as the leading influencer of public perception, according to the Reputation Institute.

The challenge to American business: get real by closing the gap between aspiration and action; become more relevant by balancing the interests of key stakeholders such as employees, customer shareholders, and communities; be responsive to the changing operating environment created by globalization, hyper-communications, and a more aware and demanding public. A business that fails to meet this challenge will likely find itself on the defensive at home and less competitive abroad.

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