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WORLD: A Responsible Balancing Act

Financial Times
June 1st, 2005

To Chinese consumers, thehallmark of a socially responsible company is safe, high-quality products. For Germans, it is secure employment. In South Africa, what matters most is a company's contribution to social needs such as healthcare and education.

Public expectations of companies are rising everywhere - but consumers' top concerns vary substantially between countries and regions, according to a new study by GlobeScan, an international opinion research company.

There are common threads: consumers in the US, France, Italy, Switzerland, the Philippines and much of South America agree that the most important thing a company must do if it wants to be regarded as socially responsible is to treat employees fairly.

But the differences stand out - and they mean that multinationals cannot hope to build public trust with a single global message that ignores specific concerns in Canada or Chile, Italy or India.

"This is not an argument for cultural relativism, but rather for a careful balance of global and local responsibility," says Lord Holme, chairman of GlobeScan and a former director of Rio Tinto. "The principles and the corporate commitment ought to be the same everywhere, otherwise you get straight into double standards," he says.

"But you should very carefully consult with local communities (in order) to make sure that, in applying universal principles, you are not minimising what matters to them."

Time and again, GlobeĀ­Scan found that people in different countries had a different perception of what constitutes good corporate responsibility.

In Turkey, the most important demonstration of corporate responsibility is charitable donations. In Australia, Canada, Indonesia and the UK, respondents most often mentioned environmental protection. In China, India and Russia, good service and product quality were listed as crucial. "For Chinese people, a company should first of all be honest and not deceive customers," says Huixin Ke, GlobeScan's research partner in China.

"This applies particularly to the food and electronics industries. In the past year, several food companies were exposed for not strictly following national production standards." She suggests that these concerns will shift over time. "With the development of the economy, Chinese people will expect more and more of a good company in terms of CSR." Indeed, perceptions do vary not only between countries but also within them, especially over time. Today in Argentina, for example, consumers put job creation and fair treatment of employees top of their list of expectations of big companies, reflecting high unemployment and concern about poverty.

But back in the 1980s, when there was high inflation, their main concern was that companies keep prices down, says Ricardo Hermelo of TNS Gallup Argentina, GlobeScan's research partner in the country.

"The opinion that citizens have about what a firm should do to be considered socially responsible is a dynamic perception related to the social agenda."

While consumers' expectations of companies have grown, their ratings of corporate performance have fallen in the last four years. Even industries such as computers and telecommunications, which have the highest ratings for social and environmental performance, have slipped in the public's perception. Only banking and finance has a slightly higher rating than two years ago.

In the minds of consumers, companies' responsibilities fall into two categories, says GlobeScan's 2005 Corporate Social Responsibility Monitor.

First, there are "operational" responsibilities, which include product safety, environmental protection, fair treatment of employees and ensuring an ethical supply chain. More than 70 per cent of consumers in the 21 countries surveyed by GlobeScan hold companies completely responsible for these. Operational responsibilities are a matter of risk management: failure to fulfil them can seriously damage a company's reputation.

Second, there are so-called "citizenship" responsibilities: solving social problems, reducing the divide between rich and poor or tackling human rights abuses. These are actions that companies do not have to undertake as part of their normal business operations. Fewer than half of consumers hold them fully responsible for these.

Companies that take on "citizenship" responsibilities can differentiate themselves and boost their reputation. But there is a health warning: a company that is tempted to pursue reputation enhancement at the expense of risk management is wasting its time.

"Our findings show that the lack of CSR at the operational level cannot be compensated for by more socially oriented citizenship activities," says Chris Coulter, vice-president of Globe-Scan. "The public is more likely to punish companies seen as performing poorly on the operational side than reward companies that exceed their expectations on the citizenship side."

There is, however, a north-south divide. Consumers in South America and South Africa, in particular, place greater emphasis on companies fulfilling social responsibilities, while those in North America and Europe have very high expectations in terms of product safety and the environment.

What lessons should companies draw from the research? Bob Langert, senior director for corporate responsibility at McDonald's, one of the most global of all brands, says that the findings are already being channelled to country managers "so that they can get the pulse of what's important in their countries". He is struck by the finding that consumers hold companies more responsible for the things over which they have direct influence. In particular, he points to high expectations about the way people are treated - both direct employees and those further down the supply chain. Corporate responsibility and employee loyalty are intimately linked, he notes. "Employees want to work for a company that has these values."

McDonald's is one of a handful of global brands including Coca-Cola, Nestle and PepsiCo, that have the dubious honour of being named by some respondents as the most socially responsible company they can think of and by others as the most irresponsible.

This can be explained by the fact that consumers fall into distinct categories. According to GlobeScan's analysis, the biggest segment comprises "demanding regulators", who tend to be female, low-income consumers in developing countries. They have a good opinion of corporate social performance but also strongly favour government regulation of companies. This category has been shrinking since 2001.

"Inactive capitalists", the next biggest segment, tend to be high-earners, male and employed by large companies.

They view industry favourably and are ethically inactive consumers and shareholders. But they increasingly expect companies to meet their operational responsibilities.

Third in size, and growing since 2001, are "mainstream activists". These, too, tend to be men on high incomes; they have the highest level of internet access of any group. Unlike inactive capitalists, however, they are very critical of business and are ethically active consumers and shareholders.

Executives attempting to get their heads around these different, and often demanding, consumer groups face another big challenge: the scepticism that often greets corporate communications about social and environmental initiatives.

The study finds that consumers in Brazil, China, Indonesia, the Philippines, South Africa and the US are most receptive to the formal kinds of corporate messages.

Scepticism remains high, however, in Mexico, Canada, Australia and Europe. Globescan concludes: "Building trust and formulating more informal communication strategies will be necessary to win over consumers in these markets."

Internal barriers are preventing leading companies from testing their belief that they could derive value from innovation that meets environmental and social needs, says a study by Arthur D. Little, the management consultants.

The survey of 40 international companies - including Dupont, HP, Procter & Gamble, Sony and Vodafone - examines their approach to developing products or processes that respond to economic, social and environmental pressures. The report, entitled The Innovation High Ground, says social and environmental concerns must be explicitly considered when setting strategy and designing products. Few companies are doing either, let alone both.

BARRIERS STOPPING COMPANIES' SOCIALLY RESPONSIBLE INNOVATION

The main barriers include:

*A lack of understanding among strategists of the significance of social and environmental trends.

*Internal and external scepticism, often coupled with a perception that these activities involve much risk and uncertainty.

*An absence of business models, particularly for emerging markets.

*A tendency to use available capital for "more of the same" in new markets rather than for new business models or services.

*An unwillingness to finance new projects, particularly at the bottom of the business cycle.

Internal barriers are preventing leading companies from testing their belief that they could derive value from innovation that meets environmental and social needs, says a study by Arthur D Little, the management consultants.

The survey of 40 international companies - including Dupont, HP, Procter Gamble, Sony and Vodafone - examinbes their approach to "sustainability-driven innovation" - the development of products or processes that respond to economic, social and environmental pressures.

An example cited in the study is France Telecom's "telepresence wall". This technology, which seeks to address traffic congestion and pollution by making it easier to telecommute, enables people to communicate as if they were face-to-face, using life-like 3D images.

The report, entitled The Innovation High Ground, says that social and environmental concerns must be explicitly considered when setting strategy and when designing products. Few companies are doing either, let alone both.

Copyright 2005 The Financial Times Limited



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