The Contradictory Nature of Progress

Art Stewart
Managing Director, Strategic Impact Partners

Are things becoming a bit too paradoxical lately, or is it just me?

Many of us in the CR movement are encouraged by developments of late that support a maturing of the practice.

However, we are equally bewildered by contrary indicators that at best suggest we still have a long way to go in C-suite consciousness. Could it be that we have lost our grip on the push to restore public trust and confidence in the integrity of business? Have we abdicated the moral high road in the obligation of business to reconcile the gap created from its past sins?

On the one hand, many market-leading organizations and their C-suite leaders have driven a firm stake in the ground on responsible business practices: From CVS’ ban on selling tobacco products, Burt’s Bees efforts to establish a standard for ‘natural’ food products, and GE’s Ecomagination initiative to improve environmental performance – to the Nestlé Lanka effort to build up domestic dairy production in civil war-torn Sir Lanka, or Microsoft’s “Youth Spark” project that connects hundreds of millions of young people to education, employment, and entrepreneurship.

On the other hand, the saga of Centerplate’s CEO abusing his dog and the meandering explanations by Commissioner Roger Goodell on what the NFL knew, and when, regarding the Ray Rice incident come on the heels of earlier episodes such as the settlements by Goldman Sachs, Citibank, Bank of America, and JPMorgan Chase in cases involving questionable business practices and excessive compensation.

Yet still, the corporate responsibility movement continues to be enriched by groundbreaking innovations, no less from the likes of Harvard’s Michael Porter and Mark Kramer with their Shared Value Initiative – and from Bentley University’s Raj Sisodia and his disciples in the Conscious Capitalism movement.

Add the significant undertaking by SASB (the Sustainability Accounting Standards Board) to develop a new framework of rigor regarding the reporting and materiality for ESG (Environmental-Social-Governance) data – and it can appear for all intents and purposes that great progress is being made. We are well on our way to achieving full assimilation of responsibility consciousness across industry by deliberately redefining value creation.

CR practice, and the profession at large, can hardly do with anything less.

Focus on a Core Dilemma

Why is it, then, that the public remains perplexingly uninformed about all of these initiatives? Whether it be the business model innovations, reporting conventions, accountability standards, pioneering global relief and development programs or the values-based regulatory policies, most corporate stakeholders remain unaware of the extent to which business is actually transforming itself.

Part of that dilemma clearly resides with the C-suite.

Take, for example, The Conference Board study of CEOs in Asia, Europe, and the U.S. in which the chief executives surveyed identified human capital, operational excellence, innovation, customer relationships, global political risks, and government regulation as the top challenges. Ranking last as a priority in every region were corporate brand and reputation, sustainability, and overall trust in business. Only the financial services industry ranked trust with any respectability – coming in as seventh in their concerns.

Furthermore, the 2013 Edelman Trust Barometer revealed that a mere 18 percent of respondents trust a business leader to tell the truth in a complex situation with nearly two thirds believing that the bad behavior evident in the financial services sector of recent years is now spreading to all industries.

With the continuing barrage of such contradictions, is it any wonder that the public remains unwavering in its conviction that business has failed to repair the trust breach?

 

The Drumbeat of Evolution Gets Louder

The contradictions continue. Early this summer, two annual conferences – one hosted by State Street Bank and my colleagues at the Bentley University Center for Business Ethics, the other produced by the Better Business Bureau (BBB) of New York – highlighted the growing criticality of ESG factors in market and business performance. Both programs also unintentionally reinforced the paradoxical nature of this current phase in the CR evolution.

Speaker after speaker at both events provided ample evidence of the receptivity to emphasizing materiality in business practice – and that ESG concerns are making their way into the everyday consciousness of leaders in a range of contexts beyond financial.

At the BBB New York event, top ratings agencies such as McGraw Hill see ESG data as having an increasing influence and impact upon the cost of capital. Laurence Hazell, Director and Governance Specialist for S&P Ratings at McGraw Hill Financial, proclaimed that we have entered an era of a “new mindset where ESG is a criteria for S&P financial materiality.”

Managing Director of Corporate Sustainability at NASDAQ, Evan Harvey, referred to the growing coalition of stock exchanges worldwide that are pressuring their member companies to report more on ESG data – and to improve the standards on assurance and materiality regarding that data. According to Harvey, “companies are migrating from the historic pattern of data compliance and disclosure to a strategy of hoarding ESG information (i.e., energy utilization) to leverage disclosure and accountability as a weapon of competitive advantage.”

Contrastingly, he also stressed that “the current state of ESG data and reporting remains poor – with the food and beverage industry at the top end of the standard, and financial services at the bottom.” That state of affairs was corroborated in a survey of over 80% of investor clients of both Ernst & Young and PricewaterhouseCoopers. Clients revealed a continuing dissatisfaction with the quality of ESG data indicating that the majority of the data is ‘feel good’ and significantly lacking in materiality.

 

Perspective from the Trenches

Bart Alexander, who now heads a Denver-based change consulting firm, spent nearly eight years at Molson Coors Brewing Company – most notably as Chief Corporate Responsibility Officer.

“Coming out of the financial crisis, there was a belief in most C-suites that, ‘We’d better address the responsibility agenda and do things right because our consumers are going to be looking pretty hard at who we are.’ That moment in history was a big boost to this field. But in reality, the supporting evidence has been mixed. Company leaders might now say, ‘Yeah, there’s a lot we’ve learned about risk management and key alliances, but we’re not so convinced that our corporate responsibility will attract a new consumer away from our competitors, or cause us to lose customers if we don’t move fast enough.’

“Many of us thought that values would be core to purchase decisions in the future. In reality, people have cared more about value, what they can actually afford, than values.

“Of course there are notable exceptions. Integration at the level of fundamental purpose is an easier task for some businesses than for others. I want to believe that this flight to short-term value is more temporary than permanent. Innovation should lead consumer demand rather than just reacting to what consumers say they want now.”

If we truly want to reduce contradiction and close the believability gap, nothing less will do.

Posted September 26, 2014 in CR Blog