By Susan Ladika
Jul. 16, 2013
How can a company that manufactured the deadly chemical Agent Orange and is linked to a tainted former nuclear weapons production site now be a leader in corporate responsibility?
After setting up a “sustainability council” composed of outside advisers, establishing related goals, and regularly sharing its progress with the public, Dow Chemical Co. has been named a dozen times to the Dow Jones Sustainability World Index—which evaluates major corporations for their economic, environmental and social performance—including treatment of workers.
“Setting goals with transparent reporting has been very transformative for Dow,” says Neil Hawkins, vice president of sustainability and environment, health and safety for the Midland, Michigan-based company.
That transformation also shows that sustainable companies can be made, not necessarily born.
While sustainability and corporate social responsibility typically are linked to relative newcomers, such as Ben & Jerry’s and The Body Shop, which were founded on such principles, “companies can evolve to it,” says Laura Gitman, managing director of the nonprofit BSR, which helps companies develop sustainable business strategies.
More than 250 of the world’s largest companies are members. “We have the biggest impact working with the world’s largest companies and having it trickle down to their business partners,” Gitman says.
It doesn’t matter whether a company is created as a sustainable, socially responsible business or evolves into one. Taking such steps can help organizations save money, attract customers and socially responsible investors, and recruit and retain top-caliber talent, she says.
SOCIAL RESPONSIBILITY NOT A NEW CONCEPT
Terms such as “sustainability” and “corporate social responsibility” have entered the lexicon in recent years, but the roots of these concepts stretch back more than a century. American Express Co., founded in 1850, made its first charitable donation to victims of the Great Boston Fire of 1872. Its employees pitched in pennies for the construction of the pedestal of the Statue of Liberty in 1885.
UPS Inc., founded in 1907, established its first philanthropic foundation in 1951. Fifty years later, it was ranked as one of the country’s top socially responsible corporations by Boston College and the Reputation Institute. The Corporate Social Responsibility Index published jointly by those organizations examines public perceptions about a company’s workplace practices, corporate citizenship and governance.
James O’Toole, professor of business ethics at the University of Denver, says sustainability generally has an environmental focus, while corporate social responsibility is more of a philosophy, focused on treating all stakeholders well and behaving in an ethical manner. Corporate social responsibility started to draw attention in the late 1970s and early 1980s, O’Toole says. “It disappeared in the 1990s, during the period of corporate greed.” It gained traction again in the early 2000s, following Enron Corp. and other corporate scandals, and as the environmental movement gained speed.
Companies that adhere to these principles “try to do good. They do this as part of their overall business strategy, as opposed to a kind of add-on,” O’Toole says. Often this philosophy is an extension of the CEO’s personal values.
But a company can go too far in its quest to do good. O’Toole cites Control Data Corp. as an example. The company, which developed the supercomputer back in the 1960s, was the first major company to publicly commit to gain profits from doing good. Eventually, the company wound up in bankruptcy.
In recent years, the focus on corporate social responsibility has picked up steam. When BSR was created 20 years ago, its efforts were often greeted with skepticism, Gitman says, and corporations questioned why they should undertake social responsibility efforts. These days, corporations don’t ask why they should be socially responsible, but how they should implement it. “Now you might stand out if you don’t do something; before you would stand out if you did something,” Gitman says.
Companies that stand out for sustainability efforts also reap financial rewards. A number of studies have shown as much, including a 2011study by scholars at Rutgers University and New York University that found companies with high “corporate social performance” had the highest financial performance. At the same time, half-hearted efforts at sustainability may not mean much. According to the study, companies with only moderate social performance did worse financially than companies with low social performance.
That’s not to say companies must obsess over sustainability. Because corporate social responsibility is so broad, “not every company should be doing everything on every issue,” Gitman says. Instead, they should focus on issues that are most important to stakeholders and that support their business’ success.
Just as companies evolve, so do the concepts themselves. John Mackey, co-CEO and co-founder of Whole Foods Market, put “conscious capitalism” on the map, particularly after this year’s release of his book Conscious Capitalism, Liberating the Heroic Spirit of Business written with Raj Sisodia, a professor of marketing at Bentley University in Waltham, Massachusetts.
The conscious capitalism model highlights four pillars that corporations should focus on: higher purpose, stakeholder integration, conscious leadership and conscious culture and management. The book cites many examples of companies demonstrating some version of enlightened management, ranging from outdoor clothing retailer Patagonia Inc. to Southwest Airlines Co. to UPS.
In many cases, “as companies mature and leaders mature, the things they focus on start to shift,” says Jeff Klein, a trustee with Conscious Capitalism Inc. They begin to realize, “every business has a purpose beyond making money. The orientation is not on shareholders, but on stakeholders.”
For a company to develop along such lines, it needs to come from the top down, and ultimately pervade all levels of the organization.
That’s underscored by the actions of UPS, which is cited as an example of a company that practices conscious capitalism, and is a member of BSR.
Although UPS is more than a century old, its founder, Jim Casey, had a passion for volunteerism and believed in “doing the right thing for the right reason, and giving back where employees live and work,” says Eduardo Martinez, president of the UPS Foundation.
A key focus is employee engagement, and having them actively involved in the community. One of UPS’s novel initiatives is the Community Internship Program, created 45 years ago as a means to train up-and-coming managers. Those leaders are sent to poor, urban communities for 30 days to take part in volunteer programs in places such as soup kitchens, drug rehabilitation facilities and jails, Martinez says. “They really get a sense firsthand of what certain communities are challenged with.”
That experience gives managers a sense of the challenges that communities—and their customers—might face, and “gives them a certain sense of humility and appreciation,” Martinez says.
Along with using the Community Internship Program as a training mechanism for managers, UPS encourages all of its employees to play an active role in their communities. Last year alone the Atlanta-based company’s nearly 400,000 employees dedicated 1.8 million hours to volunteering.
“We believe, for our employees to develop themselves, community engagement is a must; it’s non-negotiable,” Martinez says.
It’s seen as a way for employees to develop or enhance their skills, as well as contribute to the community. While there is no formal requirement that employees volunteer, they’re strongly encouraged to give back to their communities. Those who contribute at least 50 hours to a nonprofit can apply for a grant for the organization, which is funded by the UPS Foundation.
Volunteer opportunities are distributed via email, and the information also is posted on UPS’s intranet so employees can find possibilities that align with their particular interests.
Panera Bread Co., which also has been cited as an example of a company that focuses on conscious capitalism, has found another way to give back to the community while allowing community members to support one another.
Starting in 2010, the St. Louis-based company began developing Panera Cares community cafés as a way to address the issue of hunger by feeding people in need and allowing people to help one another, says Kate Antonacci, director of societal impact initiatives.
At the company’s five Panera Cares cafés, which are operated by the Panera Bread Foundation, menus have no set prices. Instead, items have a suggested price, and customers can pay more, or less. If someone pays more, they help cover the cost for people who might not be able to afford their meal.
Through the projects, Panera aims to increase discussion about the problem of hunger in America, feed those in need in a way that gives them a sense of dignity, and serve as a vehicle for community members to pay it forward, Antonacci says.
The first four Panera Cares cafés were converted from regular Panera restaurants, while the most recent one, in Boston, was a new restaurant. Each café has an ambassador at the door who greets customers and explains how the concept works.
The existing cafés already were fully staffed, and Panera found some employees wanted to transfer out, while others wanted to transfer in. “We want people who want to be there,” Antonacci says. At the Boston location, “a lot of people wanted to work there. It resonated with their own values,” she says. “There’s pride many associates feel just knowing the company is willing to try something like this.”
The company is undertaking a similar effort on a smaller scale at 48 of its regular cafés. There, turkey chili in a sourdough bread bowl has only a recommended price, and customers pay what they can. “It’s a community effort with customers who believe in our mission,” Antonacci says.
Community involvement can take many forms. American Express, for example, has supported preservation of historic sites since 1977, starting with the Acropolis in Athens, Greece. Since that time, the company has been involved with the preservation of almost 500 sites, says Tim McClimon, vice president for corporate social responsibility.
Employees also offer their time and talent. In Serve2Gether Consulting, which supports American Express’ corporate responsibility efforts, employees offer their business skills pro bono to nonprofits in areas such as human resources capacity building, digital marketing and performance management.
More recently, American Express began a program to mentor 15 nonprofits and social entrepreneurs around the globe. Nearly 150 employees signed up to ?take part. Providing such employee opportunities “makes them feel good about working for American Express. They recommend it to their friends and colleagues,” McClimon says.
Another key consideration for socially responsible corporations is their effect on the environment.
Dow was one of the companies that produced Agent Orange used during the Vietnam War, and once managed the Rocky Flats nuclear weapons site in Colorado.
But in 1992, the company created the Sustainability External Advisory Council, composed of experts from such diverse areas as environmental organizations, academia, nongovernmental organizations and the business community. “At the time, no other company had something similar,” Hawkins says. The council continues to meet twice a year, providing input on health, safety, sustainability and environmental issues.
The council’s input led to the creation of the company’s first sustainability goals in 1995. Now on its second set of goals, Dow pledges to do such things as increase the usage of sustainable chemistry, reduce energy usage and publish safety assessments for all of its products.
With the creation of the sustainability goals, Dow committed to establish metrics to gauge the progress the company makes and increase transparency, reporting on how it’s doing—both good and bad.
Hawkins attributes the company’s transition to former CEO Frank Popoff. “This kind of major breakthrough really takes a visionary leader at the top.” Establishing metrics to measure the company’s progress also helped foster employee buy-in for a company that revolves around scientific evidence. Hawkins says Popoff “recognized the intersection of business value and environmental value.”
By putting an emphasis on minimizing energy, water and waste, as well as reducing injuries and illnesses, the company realized it would affect the bottom line, as well as its employees and the environment.
Dow also established an intranet site, called Evergreen, where employees can learn about sustainable practices that they can undertake. “We believe that as they understand their own personal impact on the planet, they carry that back into their work,” Hawkins says.
Dow also has created a partnership with The Nature Conservancy, designed to show that protecting nature can be a global business strategy. While it may seem like an odd pairing, Hawkins says that to be successful, Dow seeks the help of outside experts. “We actively find partners with expertise in these areas.”
UPS, which has more than 100,000 vehicles in its fleet, has been using alternative-fuel vehicles for years. It also operates the ninth-largest airline in the world.
Because of its major carbon footprint, UPS has planted 1 million trees around the world, with much of the work done by employees. “Our philanthropic efforts are bolstered by the sweat equity of our people,” Martinez says.
While environmental initiatives and community involvement usually take center stage when corporate social responsibility is discussed, ethics also has a crucial role to play—particularly in light of Enron and the recent Wall Street scandals.
While many financial services companies have come under fire, American Express consistently makes Fortune’s list of most admired companies and best companies to work for.
McClimon attributes this to the company’s Blue Box Values—a set of values for employees to live by. They include commitment to customers, quality, integrity and personal accountability, and employees receive annual ethics training.
“As a financial services firm, we take the code of conduct seriously. We’re a risk-averse culture,” McClimon says.
The power management company Eaton Corp. also puts a strong emphasis on its reputation. The company, based in Cleveland, has a dozen ethics principles spelled out on its website. These include obeying the law, avoiding conflicts of interest and respecting human rights. That fits with the company’s vision to be one of the world’s most admired companies, says Deborah Severs, senior vice president of global ethics and compliance.
Eaton is another corporation cited as an example of conscious capitalism, and is considered one of the world’s most ethical companies by Ethisphere magazine.
Employees receive regular training on how to apply ethics principles to how they do business on a daily basis. If a discussion is held on avoiding conflicts of interest, for example, the company will see an uptick in questions from employees who want to learn more, Severs says.
Eaton selects employees, suppliers and business partners whose values are in line with the corporation’s, she says.
Severs has seen employees leave the company and then return, drawn by its ethics policy and reputation.
At American Express, having a strong set of values is exemplified by its employees, McClimon says. “Our employees are our best ambassadors.” That pays off in terms of attracting and retaining customers.
Concern for ethics and the greater good also has an effect on companies’ efforts to attract and retain employees.
Dow, for example, has created a Sustainability Fellows Program at the University of Michigan, bringing together graduate students in interdisciplinary collaboration to tackle major sustainability issues.
The company also works with 17 universities around the world in the Dow Sustainability Innovation Student Challenge Award. As he travels to various campuses, Hawkins has found that regardless of where students are located in the world, “doing well and doing good appeals to the best” students.
At the University of Colorado Boulder, a conscious capitalism conference aimed at students has been held for the past four years. “Millennial students want a larger purpose. They want fulfillment in their lives,” says Donna Sockell, executive director of the university’s Center for Education on Social Responsibility.
She recalls one student who weighed whether to accept job offers from Goldman Sachs or Green Mountain Coffee Roasters. Students today “ask the right questions. They don’t mindlessly go to work, like my generation did.”
While the student ultimately decided to work for Goldman Sachs to acquire the finance skills the job provided, “the significance was that he asked the question,” Sockell says, “something that had never happened before in all my decades of teaching experience.”
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