Promoting Corporate Social Responsibility: Managing Expectations Second Set of Breakout Sessions: Breakout A Monday, September 23, 2002 4:30 p.m. – 6:00 p.m.
The Demand Side: Investors and Consumers Adrian Hodges, Director for the Americas, Prince of Wales International Business Leaders Forum, UK
The Big Picture
Working in business is like living in a constant whirlwind of conflicting pressures. As a result of technological and communications developments, of globalization of markets, of shifts in demographics, and of changes in values, a set of issues that were once peripheral to decision-making and incidental to business success is fast becoming crucial. Yet few company directors or their managers appreciate what they are or how they impact their firms. What used be known as “soft management issues”—such as ecology and environment, health and well-being, diversity and human rights, and community development—have now become hard: hard to ignore, hard to predict, and potentially hard for the business when they go wrong. Increasingly, at home and abroad, these emerging management issues affect key corporate needs. These include the ability to access finance, to achieve differentiation in a crowded marketplace, to sustain joint ventures with partners, to build and retain loyal customers, to attract and keep talented staff, and to protect corporate and brand reputation. Companies are faced with changing expectations of their behavior and performance that can directly impact business success. Below, I examine how these expectations are influenced by a series of inter-connecting global forces for change and describe how leading companies are responding.
Forces for Change We have been living through a revolution in technology and communications. Computer power is 8,000 times cheaper than it was 30 years ago and information travels fast and wide. Millions of text messages are transmitted around the world daily. There are of course many consequences from these developments. For example, news and opinions about a company and the way it does business—whether good or bad—also travels fast and wide, often unchecked and unsubstantiated. Technical advances enable accurate and cheap measurement of pollution in both densely popu-
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lated and remote parts of the world using equipment affordable to self-proclaimed corporate watchdogs, as well as to industry. And we have been experiencing a revolution in markets. In the mid-1970s, there were some 7,000 transnational firms. Today some 60,000 operate across national boundaries, each with a separate but interdependent network of international clients, customers, suppliers, sub-contractors, and regulators. The share of the world’s market that is globally contestable—that is, open to global competitors in products, markets, or services— was some $4 trillion in the mid-1990s: one-seventh of the world’s economic output. That figure is expected to pass $21 trillion half the world’s economic output – shortly. As a consequence many more companies and their managers are operating in many more parts of the world, where understanding cultural and regulatory differences can mean success or failure for business. That the average person recognizes 1,000 corporate logos—but only 10 varieties of leaves from plants—highlights for me the importance of the intangibles like brand. Some 60 percent of the value of Coca-Cola’s market capitalization and 21 percent of Microsoft’s has been estimated as brand value. Figures like this make companies vulnerable, and they need to protect that value along an extended supply chain. All of this has been happening against a backdrop of a revolution in demographics and development. Finite resources are under pressure as demand for food, shelter, and space to live increases with the rapid growth of the world’s population. One young girl from Sarajevo had the distinction of being labeled by the United Nations as the six billionth person on the planet. Some 2.8 billion people live on less than $2 a day, 1 billion are unemployed or underemployed, 40 million are infected with HIV/AIDS. Twothirds of mankind will live in water-stressed conditions by 2025, by which time, 5 billion people will reside in urban areas. Why do these statistics matter? Because to thrive, business needs competent, reliable, healthy, and efficient personnel, an expanding market and consumer base, and a stable and safe environment in which to operate. Consider the impact of the HIV/AIDS pandemic. South African electricity firm Eskom estimates the impact of HIV/AIDS to be