The Social Awareness of Corporations

Companies have always had a contract with society. The contract embraces not just direct stakeholders (such as consumers, employees, regulators, and shareholders) but also, and increasingly, a broader set of stakeholders (such as the communities where companies operate, the media, academics, and the nonprofit sector). Part of this contract … is formalized in laws and regulations, and violating them has obvious legal ramifications. Part of it is semiformal: the stakeholders’ implicit expectations, which if ignored can bring about swift action. Most multinationals in the United States, for example, are expected to maintain at least some labor standards along their global supply chains, even if they aren’t legally required to do so. Violations of that semiformal contractual obligation can seriously harm a company’s reputation as well as consumer demand for its products….

Increasingly, a company’s sources of long-term value (for example, its brand, talent, and relationships) are affected by a rising tide of expectations among stakeholders about the social role of business…. Nonetheless, an early awareness of the concerns of NGOs and stakeholders enables companies to join and shape the debate before it turns against them—or at least to prepare themselves for turbulence ahead. Businesses that end up publicly fighting their stakeholders can well damage the brand or destroy the morale of their employees; much better to engage in a minor strategic foray than to be forced into a full-scale war…. In fact, our survey suggests that executives already know that they need to anticipate social pressure much more successfully. In our view, they should use systematic methods, including trusted techniques such as economic analysis and scenario planning, to evaluate the strategic impact of sociopolitical trends…. But volume alone isn’t a sufficient guide. New evidence from, say, a well-respected academic can quickly change the dynamics of an argument….

Many sociopolitical issues are intractable and can’t be resolved by a single company or even an industry. The most successful companies see beyond competitive rivalries and look for collaborative ways both to meet social concerns and to find new ways for industries to create value. The difficulty is knowing when to work with others and when to go it alone. Working across different organizations with different cultures can be time consuming and slow moving; Nike and other branded marketers took seven years to establish the Fair Labor Association to strengthen labor rights in the supply chain. Industry associations often lack the capabilities to tackle broad issues across a sector, as well as the power to mobilize enough support…. As a rule, companies should consider responding on their own if they think they can capture the first-mover advantage … if they are a target, or if a collective approach is too difficult or costly. Collaboration can be attractive if the stakeholders regard all companies as equally culpable, if regulation is imposed on an entire industry, or if isolated, individual action would clearly destroy value.