For today’s businesses, corporate social responsibility (CSR) has become integral practice. Companies regularly show off their CSR work as proof that they are not only chasing profit but improving society as well. However a new book from former chief executive of BP Lord John Browne, McKinsey partner Robin Nuttall and technology entrepreneur Tommy Stadlen lambasts this model. Connect: How companies succeed by engaging radically with society argues that CSR is dead. Communication Director spoke with Robin Nuttall to find out on how companies can gain real benefits for themselves and for society through extensive and steadfast external engagement.
Connect: How companies succeed by engaging radically with society John Browne , Tommy Stadlen, Robin Nuttall
Why is there a need for business to connect to society?
There is simply a lot of value at stake for business in connecting well with society, and by society we mean a whole range of external stakeholders – government, academics, NGOs. Essentially McKinsey’s research for the book found that 30% of corporate earnings are at stake from effective connection with these external stakeholders.
To give a couple of examples: in the more classic, regulated utilities industries such as electricity, gas, water, telecommunications, regulations on pricing or on competition can have immediate impact on value. More recently we’re seeing this across a range of broader industries. For example, in food and beverage, where there is now substantial consumer concern regarding obesity, the way that those food and beverage players respond to those concerns, whether it is product reformulation or shifting their promotional activity, impacts their success and their value.
In the basic resource sector, companies who can cooperate well with local communities and governments are much more likely to secure deregulation, which promotes innovation. One implication for corporate communications and public affairs professionals is then turning the function from being a downside risk mitigator to being a profit centre; a potential capability within the company that enables the business to realise its growth objectives.
If CSR is dead, what alternative do you propose in Connect?
When we say that CSR is dead what we are referring to is the original construct of corporate social responsibility, where you had a separate unit, which is not connected to the core business, developing its own ideas and checkboxes. That disconnected organisational unit is to our minds dead.
“30% of corporate earnings are at stake from effective connection with these external stakeholders.”
We map out cases in the book, for example Enron, but there are many other companies that have won numerous CSR awards although it was very clear they did not have any real connection with external society. The CSR unit was disconnected from the business and not really relevant to the day-to-day life of the business. What we are essentially proposing in the book is a new way forward, which we call “connected leadership”, which is deeply integrated with the core business and with the day-to-day activities in the business.
The research undertaken by McKinsey is the backbone to Connect. Could you tell us a little bit about this process and the insights you discovered?
The insights which the research provided are number one: the large value at stake and importance of this to companies; number two: the notion that this is upside not just downside; number three: the gap between the high importance and low success; but then number four: there are some very practical things that companies can do improve their effectiveness.
These insights came from two major research strands. The first is our analysis of the financial value at stake for companies who engage effectively or otherwise. For this process we’ve been working with sector experts across the board, whether it’s pharmaceuticals, banking, retail, basic materials or other sectors, to really understand what the key external issues and opportunities are within the sector – whether these issues relate to taxation or to health and so on. We worked with the experts to leverage economic models to evaluate the approaches taken in each sector. We then used scenario-based planning to estimate the value at stake.
The second strand is a set of surveys we’ve run with over 3,500 executives. These essentially gauge the extent to which the topic of external engagement is important, the capabilities that represented companies have and the extent to which they are successful.
“It also confirms that companies are spending a lot of time on external engagement… but less than 30% of executives feel they are having success.”
It also confirms that companies are spending a lot of time on external engagement – for CEOs around about 20-30% of their time – but less than 30% of executives feel they are having success. There is a gap here; on the one hand there is a large amount of value and of time spent, but on the other hand there is a sense that it is quite difficult to be successful in this area. This leads us in the book to propose Connected Leadership.
You mentioned there are four main tenets in the book. Could you outline them for us?
If you take the first tenet, Map Your World, there are actually now a number of tools and models which exist to help companies perform scenario planning to quantify the upsides and downsides of risk and opportunities from external engagement. We have these models across sectors so companies can deploy a scenario-based planning workshop approach often led by public affairs units integrating across the business. That’s number one.
Number two is to Define Your Contribution. This is something that companies do by asking, “what societal value am I creating?” Is it employment, is it innovation, is it indigenous skills, is it health improvement, is it sanitation? Companies can ask themselves difficult questions about how they are benefiting society. The gold standard here is again to quantify that social impact to put targets and objectives on it. Otherwise it remains somewhat soft and fluffy and it risks just being spin rather than reality. In the book we interview Paul Polman the CEO of Unilever who has taken the approach of a sustainable living plan in developing a set of quantified targets and objectives for societal contributions and that’s an approach we think other companies could look at.
Regarding the third tenet, World-Class Management, these targets should be embedded into corporate scorecards. The scorecard of the business unit leaders should not only be profit and sales, they should also be societal contributions. That is a concrete example of how to embed Connected Leadership into the business.
The fourth tenet is Engaging Radically. Can you explain what that involves?
Essentially the notion of engaging radically is to create extreme transparency around what you are doing, to achieve credibility and to demonstrate authenticity in your activities; typically by having third parties audit your activities.
One example given in the book –which is drawn from Lord Browne's experience – was in the island of Papua, in Indonesia, where BP was seeking to develop its business. The local villages needed to be considered in the development of the region. Therefore rather than simply taking forward a plan that was developed solely by the company, BP appointed Senator George Mitchell as an external independent party. He reported on what the solution should be to this regional development, taking it outside the control of the company.
That is an example of what we call radical engagement because, number one, it was extremely transparent and, number two, the company essentially said to the third party, “we are going to give you an independent ability to audit, report and comment”. That kind of combination of transparency with credibility is what we call radical engagement.
The book’s epilogue concentrates on the future. What do you think the business world and society have to look forward to?
I think that business and society can look forward to a world where they are in some ways even more reliant on each other for success. In the book we looked at the McKinsey Global Institute’s assessment of future trends and, more specifically economic burden. If you look down the list of the top economic burdens, you will see topics such as obesity, tobacco, illiteracy – as well as educational attainment and the environment. All of these are topics where government needs business and business needs government to succeed.
Robin Nuttall is a partner in McKinsey’s London Office. He is a leader in McKinsey’s public sector practice and has served both regulators and regulated clients on strategy and organisational issues across a range of sectors and geographies. These include transportation, oil and gas, mining, high tech, healthcare, telecommunications, and consumer goods companies in Europe, Asia and North America.