Corporate Responsibility U.S. Research Review. How Does the US fare against Europe?

Corporate Responsibility is a sweeping trend effecting organizations around the globe. Spawning from increased public awareness of such global issues as climate change, consumer product safety and rapid industrialization, Corporate Responsibility is becoming a mainstream concept, recognized by most Americans.

What is “Corporate Responsibility?”

The online encyclopedia Wikipedia, defines Corporate Responsibility (CR) as “a concept that organizations, especially (but not only) corporations, have an obligation to consider the interests of customers, employees, shareholders, communities, and ecological considerations in all aspects of their operations."

What do U.S. corporations think about CR? Increasingly they are seeing the value. A recent survey found that 2/3 of surveyed corporations say that corporate citizenship and sustainability issues are of growing importance for their businesses (Reward Trumps Risk: How Business Perspectives on Corporate Citizenship and Sustainabitity Are Changing, The Conference Board, 2006).

The “Corporate Responsibility” Industry in the U.S.

The CR industry has grown to a $20 billion dollar market in the U.S. according the the CRO, a leading corporate responsibility membership platform. As the industry has emerged, professional associations have been born, launching conferences, webinars and magazines as communication vehicles. The CRO (Corporate Responsibility Officer) launched in 2006 and has over 100 corporate members, including Pepsi, Starbucks, IBM, Citigroup, Intel, Dell, Avon, Gap, Washington Mutual, Mattel, Ecolab, Baldor Electric, Stanford, Harvard, Columbia, LRN, OPI, OCEG, SHRM and many others. The BSR (Business for Social Responsibility) was created in 1992 with the goal to create a more “just and sustainable global economy.” Headquartered in the U.S., The BSR is a nonprofit business association with over 250 member companies.

History and Legislation

The history of formalized corporate responsibility in the U.S. is heavily rooted in a series of corporate scandals uncovered in the 1980s and 1990s which resulted in new U.S. legislation. Corporate giants, Enron and WorldCom, among others, received worldwide attention as they lied about their financial strength through inaccurate financial reporting and wrongdoings by corporate officers. American confidence in the ethics of big business was seriously shaken. The Sarbanes-Oxley Act (SOX), was passed in 2002 and became known as the Corporate Responsibility Act. The goal was to institute a uniform system of corporate accountability and disclosure for U.S. public companies, which was firmly backed with compliance and audit procedures. Additionally corporate officers became criminally responsible for their company’s financial reporting errors, and subsequent U.S. Sentencing Guidelines have been established, creating a formula for corporate criminal fines.

U.S. Government Regulation of Corporate Responsibility

The SOX legislation created government regulation regarding corporate financial reporting. The requirements under federal securities law for companies to disclose environmental and social information are extremely limited, i.e. costs of complying with any new government environmental regulations or pending environmental litigation by the government. According to the research report “An Emerging 3rd Way? The Erosion of the Anglo-American Shareholder Value Construct” (Cynthia A. Williams and John M. Conley, 2005) such “disclosure has been found to be utterly uninformative.” They cited a 1998 EPA study of companies disclosure of environmental litigation and found 74% of reporting companies where in flagrant violation.

What about stronger CR government regulation relating to the environment, human rights and labor practices? A recent national survey of over 500 business executives, reports the following:

• 72% believe the government should regulate companies for their effect on the environment
• 56% said companies should be regulated for their effect on human rights and labor practices
• 70% foresee increased government regulation for environmental responsibility in five years or less
• 68% expect environmental responsibility reporting to be mandatory within the next 3 to 5 years, yet 55% say they have no plans to do any kind of corporate responsibility reporting
• 62% believe that pressure to pursue corporate responsibility programs in the future will come chiefly from consumers (45%) and investors (21%)
• 46% of manufacturers believe that legislation and governmental policies ultimately drive corporate responsibility
• 64% believe that the human resources department should take on social programs, 50% say operations should be in charge of environmental initiatives and 57% say finance should be responsible for economic responsibility programs

(Corporate Responsibility Survey, Grant Thorton, 2007)

Corporate Responsibility as a Business Strategy

Corporate responsibility is increasingly becoming a core business strategy for U.S. companies. Consider the following:

• 82% of private sector executives, NGOs and policymakers focused on corporate responsibility are optimistic that companies around the world will make corporate social responsibility (CSR) a core business strategy in the next 5 years (Business for Social Responsibility, 2007)
• 77% of business executives said they expect corporate responsibility initiatives to have a major impact on their business strategies over the next several years (Corporate Responsibility Survey, Grant Thorton, 2007)

Future spending on corporate responsibility initiatives is expected to grow significantly. Of recently surveyed business executives,

• 77% anticipate more spending on environmental programs
• 50% expect greater allocation to social responsibility programs
• 45% say economic/governance initiatives will see more funding

(Corporate Responsibility Survey, Grant Thorton, 2007)

Why? What’s in it for corporations? Increased profits, business opportunities, enhanced reputation, and human capital management benefits, are driving forces. A review of the research, yielded the following powerful data:

Increased Profits and Business Opportunities

• 75% of surveyed business executives believe corporate responsibility could enhance profitability (Corporate Responsibility Survey, Grant Thorton, 2007)
• 46% of the responding companies say that corporate citizenship and sustainability are major sources of business opportunity (Reward Trumps Risk: How Business Perspectives on Corporate Citizenship and Sustainabitity Are Changing, The Conference Board, 2006)

Enhanced Reputation

• 79% of global business executives surveyed believe that companies with strong corporate responsibility track records recover their reputations faster post-crisis than those with weaker records (Safeguarding Reputation™, Weber Shandwick, 2006)
• 47% of business leaders feel the sharpening focus on sustainable, responsible corporate behavior is due mainly to consumer behavior and concerns about reputation (Business for Social Responsibility, 2007)
• Improvements in public opinion and customer relations are 2 greatest benefits of enacting corporate responsibility programs (Corporate Responsibility Survey, Grant Thorton, 2007)

Human Capital Management Benefits

• Attracting and retaining talent was reported as one of the 3 greatest benefits of enacting corporate responsibility programs (Corporate Responsibility Survey, Grant Thorton, 2007)
• Companies that perform well on measures of social performance have been found to hold greater attractiveness to job seekers, particularly high quality job seekers with relatively many options (Schmidt Albinger & Freeman, 2000)
• Almost 50% of Americans surveyed believe the most important proof of corporate social responsibility is treating employees well; additionally 76% of Americans surveyed believe that a company's treatment of its employees plays a big role in consumer purchasing decisions (National Consumer League, 2006)
• Of employees satisfied with their company's social responsibility commitment
  • 86% have high levels of engagement
  • 82% feel their organization is highly competitive in the marketplace)
  • 75% feel their employer is interested in their well-being)
  (Sirota Survey Intelligence, 2007)

Examples of Corporate Responsibility

Some examples of CR programs and policies being implemented by U.S. corporations are:

• Workplace diversity
• Suitable working conditions
• Non-exploitation of workers, including discrimination and harrassment
• Avoidance of child labor issues
• Work-life balance initiatives
• Social/community policies of volunteerism and charitable giving
• “Going Green” programs – with recycling, resource conservation
• Reducing carbon emissions
• Partnering with environmentally friendly suppliers and companies

Obstacles for Corporate Responsibility

The Grant Thorton 2007 Corporate Responsibility Survey reported the four greatest obstacles to successful execution of corporate responsibility programs are:

• focus on quarterly earnings or other short-term targets
• cost of implementation
• measuring and quantifying ROI
• non-supportive corporate culture

The Conference Board 2006 Survey, Reward Trumps Risk: How Business Perspectives on Corporate Citizenship and Sustainability Are Changing, reported the three greatest challenges citizenship programs currently face are:

• measuring results (cited by 75%)
• coping with limited financial and staffing resources (cited by 58%)
• aligning with business objectives (cited by 57%)

With these challenges being reported, how is Corporate Responsibility faring in Europe?

Corporate Responsibility in Europe – a Comparison to the U.S.

One of the most in-depth discussions of CR in the U.S. vs. Europe is the article “An Emerging 3rd Way? The Erosion of the Anglo-American Shareholder Value Construct” (Cynthia A. Williams and John M. Conley, 2005). The data below provide a clear picture of Europe and the U.K.’s advanced stage of development in the realm of corporate responsibility.

• In this country (U.S.), although stakeholders’ interests are starting to be articulated with more vigor and efficacy, the CSR movement has yet to gain the mainstream acceptance it enjoys in the U.K. and the rest of Europe.
• Comparing CSR developments in the U.K., E.U. and the United States, one pair of researchers (Aaronson & Reeves, Corporate Responsibility in the Global Village, 2003) concluded that “more than any nation we studied, Great Britain has developed policies and incentives, asked for public feedback and communicated to citizens that responsible global corporate behavior is imperative.”
• In the realm of corporate social responsibility, Britain has fairly recently emerged as a leader . . . it advocates a shift in focus to long term, - “enlightened shareholder value” and requires that companies recognize and report on their effects on extended stakeholder constituencies such as employees, suppliers, communities and the environment.
• A number of countries in the E.U. have passed laws requiring companies to identify and disclose social and environmental risks.
• In contrast to Europe and the U.K., in the United States, the requirements for companies to disclose nonfinancial information are limited.
• 49% of U.K. top 100 companies published social reports in addition to financial reports, compared to 36% of U.S. top 100 companies

With regard to CR’s effect on corporate reputations, executives in both the U.S. and Europe believe that corporate responsibility is a critical driver of a company’s overall reputation. However more European executives feel this way, than U.S. executives - 56% compared to 47% respectively (Safeguarding Reputation - Survey, Weber Shandwick, 2006).

With regard to CR legislation, the passage of Companies Act 2006 the U.K., has been described by The Corporate Responsibility Coalition (CORE) as “the biggest shake up of company law for 150 years. The Companies Act 2006 requires for the first time Company Directors to consider their business' impacts on people and the environment. It also requires some of the largest businesses to make public these impacts in annual reports.” As many of the Act’s rules became effective in October, 2007, it too soon to see the full ramifications on U.K. businesses. However, it seems likely that its impact on corporate responsibility in the U.K., will far outweigh the impact of current U.S. legislation on U.S. corporations.

About Insala – Our Commitment to Corporate Responsibility

Insala is a leading global provider of integrated human capital solutions supporting the entire employee life cycle. The Insala Solution Suite spans succession planning, career development, performance management, leadership development, employee surveys, and coaching and transition, available in 13 languages in 29 countries.

Insala’s Corporate Responsibility Policies
Community Time Off (CTO) Employee Policy - Insala is firmly commited to community volunteerism through its Community Time Off (CTO) policy. Insala allocates 2 days paid days off per employee per year for community outreach involvement for non-profit organizations.

Charity Support – Insala is deeply involved with a variety of charities including AIDS Arms, Inc., an HIV/AIDS Clinic; Jubilee Theatre, an African American Theatre promoting local artists; and the National AIDS Trust.

Insala’s Products – Supporting Corporate Responsibility Initiatives
Insala’s products enable corporations to positively impact society by developing the careers of their employees. Insala’s iCareerManager, an internationally recognized software module, empowers employees with easily accessed resources designed to motivate, develop and support them in their career journey. The tools offer them insight into who they are and how their ever-changing lives fit into the workplace. This benefits employees by allowing them to take control of their professional lives, and at the same time gives organizations the competitive edge. When companies face globalization, skill shortages, dissatisfied employees and increasing turnover, Insala provides an effective and cost efficient way to meet these challenges.

Some Examples of Insala Products Empowering Corporate Responsibility
Deloitte - a leading professional services firm in the U.S. Insala’s iCareerManager helps employees navigate and manage their own careers while Deloitte demonstrates evidence of Employer of Choice Human Resource initiatives. Additionally, Deloitte saved $12 million dollars in turnover related costs in the first year of using Insala’s technology.

Office of Communication (Ofcom) - the U.K. regulator for the communications industry covering telecoms, broadcast and spectrum management, equivalent to the FCC in the U.S. Insala’s solutions enable Ofcom to offer their employees a learning and development website containing a robust career development toolkit with self assessment tools, reference materials and career coaching for individuals to access online.

Neale’s Life Inc. – a career exploration portal for teens which creates positive imagery about career concepts and career possibilities. This endeavor helps combat the growing worldwide “skilled labor” shortage. Neale’s Life Inc. is a cooperative project funded and supported by the Deloitte Foundation, Insala and Neale Godfrey, a well know author of informational children’s books.

CFA Institute (Chartered Financial Analyst) - the global, non-profit professional association that administers the CFA curriculum and examination program worldwide. Insala’s solutions enable this professional association to provide a free automated career management system, available in 12 languages, to its international membership from its website. This endeavor ensures that the Professional Services Industry remains a reliable supplier and participant in the global economy helping to combat the growing “skilled labor” shortage.