Corporate citizenship: trends in corporate engagement in social innovation

October 7, 2009

Rod Lohin, Executive DirectorAIC Institute for Corporate CitizenshipUniversity of Toronto

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Overview

Where are we now? Current state of corporate citizenship Evolution of the role of the corporation in society Competitive and cooperative strategy 2 examples

What are the implications for social innovation?

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Where are we now?

For at least the last 25 years, corporations have been increasingly expected to help solve the major societal problems of our time, due to: Rising public expectations that corporations take a more active role in

solving societal problems (Globescan 2000, 2002, 2005, 2008) Some instances of government policy and funding vacuums

▪ In many developed countries, a trend to less government leadership (currently reversing)

▪ In many developing countries, globalizing corporations have had powerful bargaining positions

▪ A few trans-national and national organizations (e.g., UN Global Compact) sought to influence corporations – but limited response

Civil society players increasingly effective at bringing pressure▪ Use of the Internet to increase scope, reach of advocacy, decrease cost ▪ Some civil society organizations have looked to corporations for support and as

agents of social and political change (rather than government)

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Where are we now?

Some corporations have behaved badly Over the past 10 years, many examples of corporate misbehavior,

some resulting in increased regulation (such as the Sarbanes-Oxley Act in the US and similar legislation in the EU and Asia)

Partially as a result of the economic crisis, governments are again taking a more activist position and increasing regulation

Some corporations have also become more sophisticated Increased attention on stakeholder management Increasingly seeing corporate citizenship as an opportunity as well as a

risk or limitation More and more integration of social and environmental issues in

business decisions, including their business strategies and models, key relationships, manufacturing, operations and human resources

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What are the key choices for the role of the corporation in social innovation? When should a company decide go beyond compliance to

leadership on societal issues?

When should a company decide to play to win, and when to play nice with others? Choosing between a competitive strategy (to capture social,

environmental and economic value for one company and its stakeholders) and cooperative strategy (to capture value for many and spread costs and risks around)

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The civil foundationLaws, regulations and industry practices

The civil frontier“Externalities”

Evolution of the role of the corporation in society

Martin, The Virtue Matrix, Harvard Business Review 2002

Compliance

Leadership

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Evolution of the role of the corporation in society

Cooperative strategy

Competitive strategy

Compliance

Leadership

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Compliance

LeadershipEvolution of the role of the corporation in society

Compliance with laws, regulations

Compliance with industry and local norms and practices- Industry business practices- Philanthropy- Community relations

Creating new industry norms and practicesWorking across sectors to make positive change

Exceeding industry and local norms and practices- Issue leadership- Enhancing key business

relationships- Social entrepreneurship Cooperative

strategyCompetitive strategy

Social innovation

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Evolution of the role of the corporation in society

Cooperative strategy

Competitive strategy

Compliance

Leadership

Biggest opportunity for corporate engagement in societal issues in the next decade

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2 examples of corporate leadership in social innovation

1. Competitive: Ericsson – Ericsson Response program

2. Cooperative: Cement Sustainability Initiative (WBCSD)

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1: The challenge

Natural and man-made disasters are increasing in incidence Was possible to leverage Ericsson’s unique capabilities and experience

responding to disasters? Would it be better to do it alone or as part of a consortium? Would anyone care?

▪ Telecommunications equipment customers▪ Employees▪ Governments

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The response

A sophisticated portfolio of corporate citizenship initiatives, including Ericsson Response A global initiative aimed at responding to human suffering caused by

disasters. We believe that there should be a faster and more effective response to disasters. The initiative formalizes Ericsson's commitment to the issue based on its previous involvement and experience in various disaster response efforts throughout the world.

The core elements of the Ericsson Response program are:▪ Research (on disasters and the role of communications)▪ Advocacy (among customers and other corporations) ▪ Partnership with UN/NGO relief organizations ▪ Action: Ericsson Response volunteers, equipment and funds

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Ericsson’s portfolio

• Compliance with laws and regulations and agreements within industry, wherever possible to the standard in Sweden • Labour practices• Environmental practices • Ethical practices

• Regional leadership on: • Philanthropy • Community relations• Cause sponsorships • Cooperation with

various reporting initiatives

• Corporate participation in industry initiatives on communications in disaster response and bridging the digital divide

• Global corporate leadership on improving the world’s disaster response

Cooperative strategy

Competitive strategy

Compliance

Leadership

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The response

Responses to more than 50 disasters over the past seven years Donation of a $10 million system to link UN operations at Brindisi

to global disaster sites via satellite Development of disaster-specific technology, including

“Government-in-a-Box” Recognized by the United Nations, UN Global Compact, UN

Disaster Program, UN World Food Program, International Red Cross, Swedish Foreign Ministry

Worldwide promotion of program and engagement within the telecommunications industry to coordinate responses

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2: The challenge

Concrete is the second most used resource in the world after water. Currently, there is no practical substitute for this versatile and durable product for most purposes (Holcim)

Globally, the cement industry produces about 5% of man-made CO2 emissions, far out of proportion to its value.

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The response

Cement Sustainability Initiative (World Business Council for Sustainable Development) A global effort by 18 major cement producers who have

integrated Sustainable development into the heart of their business strategies

The initiative was launched in 1999. Its purpose was – and still is – to find new ways for the industry to reduce its ecological footprint, understand its social contribution potential and increase stakeholder engagement.

To date the Cement Sustainability Initiative remains one of the largest global sustainability programs ever undertaken by a single industry sector.

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Other examples

Cases of corporate social innovation for further research Walmart now the world’s largest single regulatory agency through its

supply-chain management systems Withdrawal of BP from it’s repositioning as “beyond petroleum” The cross-sectoral work done to eradicate CFCs around the globe in 10

years The cross-sectoral project that reduced acid rain/SO2 emissions in 5

years in North America

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What are the implications for corporate engagement in social innovation? Increasing need for corporations to cooperate

Cooperative or non-market strategy likely to be an important way to shape increasing regulations, share costs for industry-benefiting investments, and share risks

In competitive situations, there will be an increasing emphasis on strategic priorities Companies seeking benefit from their corporate citizenship activities will be more likely to

focus on particular issues and initiatives rather than “spreading it around” Does not mean wholesale withdrawal but an emphasis on strategically important issues and

cost-management of other “compliance” issues

Some move to explore new ways to invest in social innovation Equity, debt or other more abstruse investments, seeking return on investment, rather than

grants, gift or sponsorship fees (perhaps expecting a modified return, with a trade-off for a given “social return”)

The increased use of real options to fund industry-wide research, or the development of investment funds for social enterprises (e.g., Deutsche Bank Eye Fund)

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Thank you

ROD LOHINExecutive DirectorAIC Institute for Corporate Citizenship Rotman School of Management University of Toronto 105 St. George StreetToronto Canada M5S 3E6

Tel: 416-946-7842 Fax: 416-978-1373 rlohin@rotman.utoronto.ca www.rotman.utoronto.ca/aicinstitute