This is the third post in my four part series exploring corporate social responsibility. So far I've discussed what corporate citizenship means in a global economy and described how to clarify your corporate social responsibility. The next step is committing to improvement.
It is a complement to be called a "civic leader" and an "upstanding citizen." And it's true for both individuals and corporations. Individual business leaders recognize the benefits of a positive civic reputation and work to protect it. Companies, however, have many different reputations. They have a financial reputation with stock analysts and shareholders, another as an employer, etc. Ultimately, a positive reputation is a statement of trust in the organization by the community.
Trust has real business value. It lowers the cost of doing business. The first time I do business with someone, we have to develop a relationship, which takes time, and our unfamiliarity may drive us to use costly legal protections like contracts and non-disclosure agreements. Some academic studies show that a lack of trust can double the cost of doing business, if the parties do business at all that is. But once trust is created the next time I do business with the same person that initial investment pays off. Business between us is easier, faster and cheaper.
How is a trusted reputation created? The formula is pretty simple. You make a commitment to someone and then you fulfill it. Each time you do so you strengthen the trust in the relationship and your reputation for responsible behavior. Commit, fulfill, repeat.
The question is "what commitments makes sense?" and only by taking the previous step of clarifying the company's responsibilities can the issue be answered strategically. Once companies have clarified where their responsibilities lie, as discussed in my earlier post, the next step is to make credible commitments to do something about them and then publicly fulfill those pledges.
Companies that have their origin in social enterprise find that meeting commitments are part of their founding corporate DNA. NJ-based TerraCylce, for example, builds its products from non-recyclable waste that would otherwise be entered in landfills. LA-based TOMS shoes fulfills its commitments by donating a pair of shoes to the underprivileged for every pair a paying customer buys. Traditional companies without a social heritage, however, will have to take additional steps.
Take Frito-Lay's SunChips brand multigrain snacks. Company leaders recognized the environmental damage from manufacturing and thrown out packaging were impacts the company needed to take responsibility for. Their response was an innovative new 100% compostable bag that potentially eliminates landfill waste and a number of efficiency and solar power projects that have taken select manufacturing plants off grid. Campbell's Soup recognized the company's connection to childhood obesity and committed to reformulating its products to make them healthier for children. While companies may have similar social and environmental impacts, each company will likely need to craft a unique combination of commitments that respond to their distinct interrelations with the community.
How can companies best communicate their commitments and progress? Many corporations produce an annual CSR or Sustainability Report, but fail to recognize the purpose of the report, which is to document clearly that you understand where your responsibilities lie and what you are committing to do about it over the reporting period. Then, in subsequent reports, you document progress and set out further commitments and goals. A CSR Report is not a PR leave-behind, but a public conversation with society about how you are fulfilling your responsibilities. In some cases, a report may not even be the best vehicle. Internet-based social media tools can allow a conversation to occur between a company and its stakeholders. As with commitments, many companies will find that they need unique and targeted ways to engage their communities in a discussion about social responsibility.
Making and fulfilling commitments to society creates reputational value in itself, but that's not enough. The next and final part in this series will look at how company's can capture - and sustain - the value they create.
Cross-posted from Forbes.com