Citizen Brands-why businesses need to wake up to corporate responsibility
Business still does not take corporate citizenship seriously. This is strange, even perverse, given the overwhelming evidence that it is becoming a critical aspect of business success. An Article By Michael Willmott, featured in 'Parliamaentary Brief' July 2001
Business fads come and go - the latest one is innovation - and often with little real evidence in support of their efficacy. Yet, study after study has shown that being a good corporate citizen really does translate into longer term business success.
In my book Citizen Brands I consider many of these studies. Some consist of detailed analyses of the impact of various citizenship initiatives (environmental or community programmes, for example) on commercial indicators like profits and share price.
Others are more general consumer attitude surveys. Interestingly, and importantly, there are very few studies that show the converse - that is, that being a good corporate citizen is bad strategically and commercially.
What these studies show is that being a citizen brand, as I describe it, has both direct and indirect impacts on commercial success. Under the former are specific initiatives, that can be categorised as environmentally or socially responsible behaviour, that have been implemented precisely for their environmental or social impact but which also result in tangible commercial benefits: improved productivity or more innovative product development, for example.
But corporate citizenship also feeds indirectly into commercial success via the mechanism of branding. This is where the consumer research is so illuminating as it shows that people are increasingly judging companies on their values and wider roles and behaviours in society.
In this way, brands - and brand equity - increasingly incorporates a feeling, a sense, of how in touch with the world a company or product is. And this part of brand equity is becoming more important.
This relationship between citizenship and commercial success, and the direct and indirect impacts, is evident in a number of areas but, as an example, consider the issue of human resources and how companies treat their employees.
Here, all the research shows the commercial benefits of being a good employer and not least the intuitively obvious point that employee-focused companies are more profitable.
But good employment strategies have an impact on the share price too. In Germany, Linda Bilmes, Konrad Wetzker and Pascal Xhonneux's analysis of more than 100 companies revealed a strong link between investing in employees and stock market performance.
Companies that place workers at the core of their strategies produce higher long-term returns to shareholders than their industry peers do*. At the other end of the scale, getting rid of staff - the downsizing that was so prevalent in the 1990s and is raising its ugly head again now - is not associated with a better stock market performance while, a University of Colorado research exercise showed that downsizing does not lead to increased profits either**. Indeed, as Gary Hamel and C K Prahalad noted in their influential book Competing for the Future, share prices might even lag behind competitors after a downsizing:
'The study concluded that a savvy investor should look at a restructuring announcement as a signal to sell rather than buy'***.
Perhaps one reason why downsizing fails to improve the commercial performance of companies is that it undermines staff spirit ('the inevitable result of downsizing is plummeting employee morale' as Hamel and Prahalad put it) and this feeds directly through to customer satisfaction.
This is important as the work of Bain & Co shows that those companies that have the highest employee retention have the greatest customer retention. Since those companies that have the best customer retention also have the highest profitability it is clear how the connection is made.
For investors then, whether a company is a good corporate citizen - is a citizen brand - is a crucial piece of information. It is perhaps not surprising, therefore, that investors are increasingly taking account of citizenship issues, although there is clearly some way to go before it becomes universal.
Critical in this will be the actions of investors themselves and their advisors. Evidence from both suggests a keen awareness of the issues. There is now also the obligation for pension fund trustees to define their attitude to 'socially responsible investment', as a result of the 1995 Pensions Act that came into force in July 2000.
A survey for the Prince of Wales Business Leaders' Forum sought the views of 100 institutional investors, regulators, parliamentarians, business journalists and non-governmental organisations in three European countries.
Three quarters felt that responsible social and environmental behaviour would increasingly affect a company's share price and only one in seven disagreed (presumably one in ten were undecided)****.
And for a variety of reasons, pension funds are increasingly active in this area. As Will Hutton notes 'there are now £2.6 billion of savings funds explicitly mandated to invest in companies who demonstrate social, environmental and ethical responsibility in their business policies'*****. He goes on to point out that Britain's third largest pension fund - the Universities Superannuation Scheme - has made it clear it will confront poor environmental and ethical behaviour when managing its £20 billion of assets.
Clearly managers have a responsibility to take note of the wishes of the company's owners. If shareholders increasingly want companies to be better citizens then it is their duty to follow that instruction. It does not matter whether the motivation is an ethical/altruistic one (as might be the case with certain pension funds or individual investors) or a commercial one (where the shareholders recognise it is just good business practice) or a combination of the two.
And you would have thought that investors will increasingly support citizenship initiatives as they recognise that being a good citizen is actually good for business.
At a time when a range of consumer surveys, including our own research at the Future Foundation, show citizens are growing increasingly cynical about companies' behaviour and that of multinationals in particular, this is an important issue for business. And since social and economic trends suggest these concerns are likely to increase it is likely to become more so in the future.
This is why corporate managers need to take citizenship more seriously; why they need to turn their brands into citizen brands. This involves understanding not only the values but also the concerns of employees, customers, investors and suppliers.
But in addition, it entails taking an active interest in local and wider communities and society at large - monitoring how well they are doing and the problems they face and demonstrating that the company takes these issue seriously.
Increasingly, companies will gain strategic advantage by building brands that embrace and encourage core values that have a citizenship component (in the broad sense that I have described this). This does not just mean feeling guilty about a particular issue or problem, or giving money or some other form of benefaction. It means understanding society and the problems and issues that are engaging people - be they customers, employees, shareholders or whoever - around the world. It is about being outward looking, not inward looking; it is about actively participating in society rather than passively ignoring it. It is about putting society at the heart of the company.
Michael Willmott's book Citizen Brands - Putting society at the heart of your business, has just been published by John Wiley and Sons.
* Linda Bilmes, Konrad Wetzker and Pascal Xhonneux, Financial Times, 9 February, 1997. See also, Linda Bilmes and Konrad Wetzker, People Factor: People Factor, Financial Times Prentice Hall, 2000
**Introduction to Corporate Social Responsibility, Business for Social Responsibility, www.bsr.org
*** Gary Hamel and C K Prahalad, Competing for the Future, Harvard Business School Press, 1994
****Financial Times, 27 June 2000
*****Will Hutton, Society Bites Back, Industrial Society, 2000
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