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A debate is raging through the pages of the world’s leading business
periodicals. Boiled down to its essence, the fundamental question seems
to be this: Is it good business to be a good business?
On one side are the traditional bottom-liners: publications such as The Economist,
Forbes and The Wall Street Journal. The Economist has received the most attention
lately due to a stinging criticism of the concept of “corporate social
responsibility” in November 2004 on the eve of the World Economic Summit
held in London.
On the other side are the so-called “triple bottom liners”—magazines
such as Wired, Fast Company and Across-the-Board, which pay more attention to
the intangibles that bring value to corporations. They suggest that well-run
companies do more than just maximize profits—their performance spans a “triple
bottom line” that includes social and environmental returns as well.
Jean Rogers, principal associate for ARUP and consultant to the Global Reporting
Initiative (GRI), agrees with much of the critique of corporate social responsibility
(CSR) that appeared in The Economist. “Right now, the field of CSR is storytelling.
Some rigor has to be brought to it; some comparability is necessary. The Economist
pointed to simple things like defining standardized units for reporting on quantitative
parameters like greenhouse gas emissions. They point to the lack of responsibility
and accountability by the standards-setting bodies. We can’t fault companies
for having sloppy reports if the standards-setting bodies are not actually establishing
good standards.”
The Economist highlighted a major difference between standards for financial
versus social responsibility, Rogers said. While financial standards are overseen
by broadly supported institutions like the Federal Accounting Standards Board
and the International Accounting Standards Board, there are no equivalent institutions
to oversee CSR standards. This has been a big impediment for the field of CSR.
Others claim the much-debated article was off base. “The Economist article
came out eight years too late,” said David Vidal, director of corporate
citizenship at the prestigious Conference Board, whose 1,000-plus corporate members
include most of the world’s leading companies. “CSR is a deepening
phenomenon. We are certainly done with the first phase of CSR, the idea that
this is something new. We are currently in the second phase: How do we do it?
The so-called ‘at work’ phase, a time when one lends discipline to
the exercise.”
Why do companies care about delivering more than financial returns? According
to Vidal, it is because most of a company’s value—and hence its return
to shareholders—is tied up in intangibles like reputation, customer loyalty
and the intellectual capital held by its employees, claimed Vidal. As evidence,
he compared any large company’s book value (the value of its physical assets
and cash) with its market value (the value investors set for it), which is often
several times higher. What is the difference? It is the value of the company’s
reputation, the loyalty of its customers and employees, and the confidence of
investors that its human and intellectual capital won’t walk out the door.
Coca-Cola is a good example. Coke is the world’s most valuable brand name,
according to the 2005 Business Week/ Interbrand annual ranking of top global
brands, and is consistently ranked as one of the three most reputable companies
in the world, according to the Reputation Institute.
If every physical component
of Coca-Cola’s operations—its bottling plants, trucks and raw materials—were
to disappear tomorrow, the company would still maintain most of its market value.
The name “Coca-Cola” carries extraordinary power.
“
The tradition and heritage of Coca-Cola (are) rooted in communities and locations,” said
Perry Cutshall, director of operations of The Coca-Cola Company, Global Public
Affairs. “Our company’s assets reside in these communities that range
from the very small to the global. So, good corporate citizenship is not new
to us. It is part of the DNA. That’s why we have such great brand value.”
But brand value can be vulnerable. With more than 300 top-tier partners and suppliers
in 200 countries—many of them separate companies that operate independently
of the Atlanta-based parent—Coca-Cola executives know that any action attributed
to any affiliate anywhere in the world, true or not, can impact the brand’s
reputation everywhere.
When wells began to run dry in the Indian state of Kerala during a drought in
2001, citizens and activists were quick to blame Coca-Cola’s newly opened
local bottling plant. The state of Kerala then sued the company for misuse of
water resources. While lower courts have sided with Coca-Cola, Kerala has appealed
the case to the Supreme Court of India, and Coca-Cola’s public-relations
woes in the country continue.
And in the Internet age, the double-edged sword
of high visibility can be especially difficult to control. A recent article in
The Wall Street Journal revealed that, for the past three years, many of the
ongoing pressure campaigns against Coca-Cola’s operations in India have
been coordinated and fueled by the Web site of a single activist in California.
That raises the stakes for corporate responsibility. The water controversy in
India spurred Coca-Cola to do some soul searching, and make water management
a key focus of its new global corporate citizenship program. “We realize
that the world’s operating environment is much smaller than it used to
be,” stated Cutshall. “With today’s communication technology,
everything you do is known all over the world very quickly.”
Citizenship@Coca-Cola—a 360-degree View of CSR
To protect its core asset—its name—Coca-Cola launched a global initiative
in late 2003 to drive high standards of “global corporate citizenship” throughout
its network of bottlers, distributors and suppliers. Called “Citizenship@Coca-Cola” (C@CC),
the program’s objective is to measure and drive improvement in four key
areas: workplace, community, marketplace and environment.
The basis for C@CC is a Global Citizenship 360 (GC360) assessment process developed
by the company and The Future 500, a non-profit that links leading corporations
with the issues and concerns of their stakeholders. (The process, which was profiled
briefly in “Avoiding Survey Fatigue” in the summer 2005 issue of
green@work, has been dubbed “360” because it in essence allows a
company to get a complete round-about view of its past, present and future.)
The GC360 measures the company’s performance against its own internal criteria,
as well as leading standards of corporate responsibility, such as the Dow Jones
Sustainability Indexes, FTSE4Good, Global Compact and the Domini Social Index.
It also organizes the information into a standard framework for reporting on
sustainability called the Global Reporting Initiative (GRI), which is currently
employed by more than 630 companies worldwide.
“
One would think that a universal standard would be simple, but you have to remember
that Coca-Cola operates in virtually every country in the world, where values
and principles are culturally driven or, in some cases, are single-issue-driven,” observed
Cutshall. “And when one goes beyond that and wanders into the realm of
social issues, the task becomes even more difficult. The idea that we could arrive
upon one universal CSR standard is hard for me to accept. A global standard that
can apply to six billion people organized—or disorganized —around
the globe, is, in my view, an impossibility, an exercise in futility.”
Because of that, “There is no one single set of external standards that
is a perfect fit for Coca-Cola.” The GC360 process enables Coke and its
suppliers to see how they perform against a wide array of stakeholder expectations.
With funding from Castle Rock Foundation, Bank of America, Coca-Cola, Mitsubishi,
Nike and Global Futures Foundation, The Future 500 developed Version 1.0 of the
GC360 process in 2002. Since that time, more than 75 companies have applied the
tool around the world, including General Motors, Hewlett-Packard, Conoco-Phillips
and corporate members of The Conference Board. Companies like Coca-Cola have
customized the GC360 to include their own set of CSR criteria. Companies in The
Conference Board compare their performance to benchmark averages through the
Board’s Working Group on Global Corporate Citizenship and Risk Assessment.
“
Generally speaking, companies are always interested in where they are, and where
they want to be,” observed Vidal of The Conference Board. “Yes, there
is an array of codes and standards out there.
Companies, by and large, are very
interested in a self-assessment. There are so many complicating layers in unchartered
areas such as governance, ethics, transparency and reporting. I believe governance
is the apex of the pyramid. Execution, planning, customers and product are all
key, but governance at the top sets the tone for the whole pipeline. The GC360
process makes the assumption that this area of inquiry is valid. The process
really works like a surrogate stakeholder meeting,” he said.
GC360 consists of 209 criteria, drawn from 20 widely used standards of corporate
governance, accountability, responsibility, sustainability and citizenship—terms
that have distinct meanings but that are commonly used as synonyms. The criteria
are converted into yes/no questions and embedded in a software tool that runs
on any PC.
The GC360 data collection is conducted as a four-hour group process. Each company
gathers together a core group of six or more executives from various departments,
typically representing top executives, public affairs, human resources, operations,
environmental affairs and communications. A facilitator leads the group through
a questionnaire and a discussion process across a full range of citizenship issues.
Executives discuss and debate their answers, until the group comes to a consensus.
At the end of the half-day process, the GC360 prepares several deliverables that
summarize the results and provide guidance for strategically addressing key issues.
(See inset: GC360 Deliverables.)
“
Never before have all members of the Coca-Cola system come together to create
a single global platform,” commented Cutshall, noting that the GC360 process
was instrumental in accomplishing this task. “A number of factors converged
to show us that the time is now for all members of our system to come together
under the C@CC initiative.
C@CC has therefore been integrated into our global
growth strategy—it isn’t an add-on. And you know what? It doesn’t
cost any more to behave in a proper fashion than to do the wrong thing. In the
grand scheme of things, the cost of C@CC was invisible,” he said.
Using the GC360 Results
At Coca-Cola, the results of the GC360 are used by both senior leadership and
functional managers. “For the top folks, the GC360 communicates the benefits
of various CSR activities to the business,” continued Cutshall. “But
equally important is to get the functional managers involved, the people who
actually do things ... you need buy-in from both directions. Not just the top
or just the bottom, but from both.”
Not everyone can participate directly in the GC360 data collection and discussion
session, however. To convey the findings, companies use what is called the Executive
Report Card, which rates every business function using a classic A-to-F grading
scale. “The robustness of the Report Card has been great for our bottling
operations,” Cutshall said. “We have actually added a self-generated
report to the process that addresses the reason for actions by each business
unit. It is more or less an assessment summary for internal management use.”
At Coca-Cola, the GC360 is used to prepare both internal and external reports. “Our
approach is a bit of a hybrid,” Cutshall said. “We can simplify the
output and leverage it into the business planning process, report externally
following the GRI format, or accommodate additional data requests.”
More important than the numbers, however, are the cross-departmental understanding
and commitment that result from the process, Cutshall said. Over the course of
about four hours, the assembled executives cover a comprehensive array of issues,
and gain deeper understanding of the company’s strengths, weaknesses, opportunities
and threats. That enables the team to outline a strategic plan that takes full
advantage of the company’s strengths and opportunities, while reducing
risks and flagging weaknesses for improvement.
The results of the process, including the Report Card, are owned by the local
business units. Coca-Cola does not require its system members to report their
performance to Atlanta. That helps insure against any incentive to inflate the
results. However, each business unit is required to develop a strategic plan
based on its findings, to report this to Atlanta, and to integrate it into its
business plans. This way, corporate citizenship can be better embedded in the
company’s operations.
The process is applied by The Coca-Cola Company, syrup and concentrate makers,
and independent bottlers. While the suppliers to these entities have yet to participate
directly in the GC360 process, Coca-Cola does leverage these results to help
shape standards on environmental and social issues throughout their supply chain.
The Citizenship Pyramid
To transform the results of the GC360 process into changes in its actual operations,
Coca-Cola has developed and refined a model that ties together the three core
components of its citizenship system in a “Citizenship Pyramid.” The
three-tiered pyramid was developed in 2004 to help the company organize its CSR
activities more logically. It draws together what had been separate initiatives:
measuring and reporting CSR performance; engaging with stakeholders on issues
like sustainability; and demonstrating to private-sector leadership on key issues
like water, HIV/AIDS and recycling. (See inset: Citizenship Pyramid.)
The Base: Performance
The base of the pyramid is “performance” because, as Cutshall pointed
out, good performance is the foundation for trust and leadership. Good performance
is achieved through programs, plans, management protocols and incentives that
encourage and reward continuous improvement.
Performance criteria are selected on the basis of their materiality, defined
as their relevance to stakeholders. Through the C@CC program, Coca-Cola assesses
its performance across all criteria that are material for its stakeholders. These
include criteria established formally by stakeholders and reflected in various
standards, as well as additional criteria that Coca-Cola has developed on its
own. The ideal is to “do things right,” whether or not doing so always
leads to the perception of good performance. The company may sometimes be “caught
in the act of doing good,” but publicity is not the objective here.
The criteria in the “performance” tier make up a relatively broad
and comprehensive inventory of practices by Coca-Cola, and the raw material from
which criteria may be selected for the “trust” and “leadership” tiers.
The Middle: Trust
The middle of the pyramid is “trust,” the confidence that stakeholders
have in the company’s performance, based on the issues they care about
most.
Coca-Cola seeks to build trust by communicating the company’s concern and
performance on matters that are high priorities for its stakeholders. The idea
here is to “do the right things”—i.e., to make progress in
the areas that are most important to stakeholders.
Performance in these areas
must be documented and communicated effectively. Sustainability reporting, communications
and direct stakeholder engagement are all process by which these goals are accomplished.
Because this middle tier is driven by stakeholder signals, it is the place
where
Coca-Cola links with, and cultivates trust and support from, independent third
parties. Thus, Coca-Cola relies on this middle section for the credibility that
leads to broad positive public perceptions. This section therefore provides the
link between perception (reinforced by the leadership issues at the top) and
performance (inventoried in the base).
The middle tier is the most dynamic, because it reflects the company’s
interaction with its stakeholders. The company’s good practices (the base)
will be updated as social needs and conditions change; the iconic, leadership
initiatives at top are too central to be changed at a whim. But because the content
of the middle tier reflects stakeholder priorities, the issues emphasized may
shift more quickly.
The Top: Leadership
The top of the pyramid is “leadership”: iconic issues that reflect
the “heart and soul” of the company, where the company can serve
as a model for others. They reflect the essence of the brand, and align with
the company’s assets, competencies, mission and business objectives. Specific
issues for which Coca-Cola currently works to build a leadership position include
water, sustainable packaging and HIV/AIDS programs.
Leadership initiatives are not necessarily larger or more expensive than those
reflected only lower in the pyramid, but they are closely connected in the minds
of employees and the public with the essence of the company. They require both
sustained commitment and excellent results. Therefore, when Coca-Cola selects
a leadership issue, it must commit significant time and resources.
Leadership initiatives must be selected and protected with the same level of
commitment the company would apply to its lead global slogan or marketing campaign.
These initiatives reinforce and build the public’s perception of what Coca-Cola
is and stands for, so they must be selected very carefully. If they run contrary
to Coca-Cola’s underlying nature, they either will not be believed by the
public, or will create a false impression of the company, which could undermine
the brand.
Leadership initiatives are absolutely dependent on the two tiers that support
them. They rely on both trust and performance. If the company violates its own
standards, it will be seen as hypocritical and the initiatives will be interpreted
cynically as “window dressing” rather than a genuine expression of
the company’s nature, placing the brand at risk.
Water is one example. Because activists are leveraging Coca-Cola’s brand
to call attention to water shortages in India, any action that Coca-Cola takes
to promote water efficiency and availability will be placed under intense scrutiny
by activists, media and the public. To protect itself against criticism, the
company’s water programs must be founded on solid performance and undertaken
with respected third-party stakeholders. The strategy on water “must connect
back to the bottom of the pyramid, to the people on the floors where the work
actually gets done,” explained Cutshall.
Putting It into Practice
It is too early to tell whether Coca-Cola’s approach will have the desired
effect among outside stakeholders. “There is a natural distrust of corporations
among the media and public, and especially among activists,” says Bill
Shireman, president of The Future 500, which created the GC360 process and adapted
it for the C@CC program. “That won’t change overnight. It may take
many months or years of solid CSR performance for companies to develop the stakeholder
relationships and trust that will protect their brand names.”
Perhaps no other company risks as much as Coca-Cola when it comes to brand value.
In today’s economy, when intangibles can swing the stock market or induce
a product sale, Coca-Cola is hoping that corporate citizenship is a learning
process that will really pay off. “We want to develop a virtuous, sustainable
business cycle,” said Cutshall. “Because of our resources, scope
and reach, we can then address broader needs of society in alignment with our
mission as a private company.”
Peter Asmus is a freelance journalist based in Northern California.
His articles have appeared in green@work, Business Ethics, the
Journal of Corporate Environmental
Strategy, and in a number of major newspapers and trade publications. |
