Chapter 15

The Corporate Citizenship Index

TYPES OF ORGANIZATIONS WHERE THIS METRIC IS APPROPRIATE

Any large organization with 1,000 or more employees and at least $10 million in revenue should think about measuring corporate responsibility and ethics. Most medium and large organizations have ethics and corporate responsibility programs and clearly spend money on these things, but few have good metrics to tell them about the success or failure of those efforts. Corporate responsibility also applies to government organizations. Many of them do a wonderful job in this area, and their ethics are without question. I have had the U.S. military as a client for more than 20 years and I don’t think I have worked with any other industry or type of organization that is as ethical and concerned about the community as these men and women. Nevertheless, even if ethics and corporate responsibility are part of your DNA, you still probably want to measure your performance to make sure it continues to be good. Hospitals and other health care providers need to measure this since they draw patients and staff from the local community. Most hospitals rely on donors as well, so it is really important that they perceive you as an organization with strong concern for the community and impeccable ethics. No one is going to donate money to an organization that they fear will misuse it.

HOW DOES THIS IMPACT PERFORMANCE?

Like many of the other indices I discuss in this book, this is an area of performance that is as important as financial results and directly links to them. It also links to your survival. Think about Arthur Andersen, one of the biggest and most successful accounting and consulting firms in the world. That company is now gone because of unethical behavior from a few of is people. Gone—out of business. It is shocking that an institution can be brought to an end over ethics. Liability lawsuits have almost put several pharmaceutical companies out of business. Pfizer received a fine of over $1 billion and was told by the judge that the next time, someone is going to jail. Pfizer paid the fine and stayed in business, but many companies could not withstand a loss like this. Merck, another pharmaceutical company, almost failed over a similar situation.

Being a good corporate citizen can also have positive impact on your bottom line. Your brand image is deeply impacted by your efforts in this area and how well you communicate them to your stakeholders. A news story about how executives from one of the nation’s largest charities were flying first class and staying in five-star hotels led many people to put their charitable donations elsewhere.

This measure is likely to correlate to the following other measures of an organization’s success:

• Recruiting and selection
• Marketing and brand image
• Customer satisfaction
• Customer loyalty and engagement
• Employee engagement and satisfaction
• Revenue
• Profits
• Avoidance of fines and lawsuits
• Competitive advantage

COST AND EFFORT TO MEASURE

Both the cost and difficulty of constructing a corporate responsibility analytic are medium to high. There may be some costs in benchmarking other organizations that are really good at this to see what and how they measure performance in this area. You might have to pay for some consulting help in designing the analytic or getting access to proprietary measures. You might also need to spend some money for an external assessment of your programs, or for surveys. On the other hand, I have worked with organizations that developed good corporate responsibility metrics without spending any external money, using their own staff to design the index and collect the data. I don’t think this is a difficult aspect of performance to measure, such as human capital or customer engagement. The types of metrics that go into this index are fairly straightforward and not too expensive to collect.

HOW DO I MEASURE IT?

Becoming an organization that shines in this area is somewhat dependent on your history. If you have a track record of poor performance in this area and that is part of your culture, it will be tough to change, but that is part of why you measure anything—so you can get better. The basic categories of measures to include in your corporate responsibility index are:

• Knowledge
• Perceptions, values, and beliefs
• Policies, procedures, products, and programs
• Decisions and behavior
• Outputs
• Outcomes

Knowledge Metrics

In order to have an ethical organization your own staff has to understand the difference between what you consider right and wrong, and your customers and stakeholders need to know what you stand for and how you operate your organization in such a way that shows corporate responsibility. This section of the index has two parts: inside knowledge and external knowledge. Inside knowledge needs to be measured with a test evaluating whether people know the right things to do and the company’s code of ethics. Some things will be easy and everyone will know the right answers without attending any training, but many other things will not be as clear. With one of my associates, Denise Shields, I developed a course for one of our government clients called Shades of Gray. It teaches people the right thing to do in situations where the right answer is not so obvious. The same program was then adapted for the Florida Department of Revenue. The clients used the test at the end of the course to assess the degree to which employees learned the material, and did a follow-up test on a sample of employees several times a year to make sure they retained the knowledge.

In order to measure external knowledge about your ethics and corporate responsibility, you should consider tracking exposure and customer knowledge. Exposure is measured by counting the messages, or “impressions,” as advertising people call them, where your message is getting out to the public or your target audience—articles about your organization, news stories, citations in publications, web site hits (your own web site and others) on corporate responsibility information, awards, advertising exposure, and other things that you do to communicate your corporate responsibility to the world. Each communication is assigned a score based on level of exposure. For example, a YouTube video about your volunteerism program that is viewed by 1.2 million people counts for way more than two inches of copy at the back of the business section of your local newspaper that has a total circulation of 40,000. Actually measuring the knowledge the general public has of your company’s efforts in this area is tough, but you could query customers and job applicants.

Perceptions, Values, and Beliefs

The second category of measures is an assessment of your employees’ perceptions, beliefs, and values regarding ethics and corporate responsibility. This is best measured using focus groups where people are presented with a series of statements that describe how the organization operates regarding ethics and corporate responsibility. The idea here is that people might understand your values and rules about the right thing to do yet still perceive that the company does not follow those values and policies. For example, an organization may have a policy about buying from ethical suppliers but always selects the cheapest supplier regardless of its ethics. That organization may also have a policy about accepting gifts from suppliers but accepts sporting event tickets, trips, and other things on a regular basis and expects suppliers to hire executives’ kids when they graduate. The words on the brass plaque regarding a company’s values are often quite different from the real values it operates under. This metric is an attempt to expose that hypocrisy. In order to change behavior you have to change both knowledge and perceptions.

Perceptions of consumers regarding your company can be assessed via focus groups or surveys, or if you are a business-to-business organization, you can ask corporate customers to complete an anonymous assessment regarding your culture and corporate responsibility efforts.

Policies, Procedures, Products, and Programs

A big part of excelling in the area of corporate responsibility is having policies and programs that support this versus detract from it or at least make it difficult. For example, I worked with a company that had a policy that all employees must volunteer eight hours per month on community service. The company paid for four of those hours and gave employees half a day off each month, expecting them to match that with four hours of their free time. This policy went a long way toward encouraging high levels of volunteerism, and the organization got lots of positive press about this radical policy. Another company I worked with had a workaholic culture where most people put in 70-hour weeks and then were expected to do community service or charity work on top of the 70 hours, adding an additional layer of stress to people who were already burned out.

Probably the best way of assessing your practices, policies, and programs is an annual assessment done by some outside experts. As you know, I am against annual metrics, but this is only one of many measures that look at corporate responsibility, and most of the others are metrics that can be tracked monthly. Palomar Health in Escondido, California, contracts with the Council for Ethical Organizations to do an annual assessment of its ethics and governance programs. Each year Palomar Health receives an overall score compared to other hospitals and benchmarks, as well as specific feedback on their strengths and weaknesses. They use another company to assess their community support and charitable work. Outsiders are able to compare your programs and policies to industry averages and benchmarks so you can see where you stand. You might also ask employees whether they know the policies and are aware of the community support programs (knowledge), and survey them about their perceptions regarding the policies and programs (perceptions, values, and beliefs).

Another way to measure social responsibility is by assessing your products and services to make sure they are not harmful to the larger society. It would be pretty hard for a cigarette company to claim high marks for social responsibility, since there does not seem to be any good that comes from making and selling cigarettes, other than that the industry provides a lot of jobs. But what about companies that make guns, or sell soft drinks, or cars that go 200 miles an hour? Even if your product is good for health and society, such as coffee (which contains loads of antioxidants), there are ways to produce it in a socially responsible manner. In fact, coffee is the focus of the research discussed in the MIT Sloan Management Review article referenced previously. Its research showed that consumers would pay an extra $1.40 a pound for coffee produced via fair trade practices and good farming techniques.

Each of your products and services can be evaluated based on the raw materials used to produce it, the manufacturing methods used, and finally the extent to which your product or service itself is socially responsible. If you look at a big company like Nestlé, which makes everything from Nestlé Crunch bars to baby food, the different products would get different scores.

Programs also need to be assessed as part of the metric. For example, you might have a whistle-blower program, but it is administered by HR and no one trusts it, so nothing is reported. One that is administered by an outside company would probably get a higher score.

Decisions and Behavior

Another type of measure of corporate responsibility is the decisions made by your leaders and the behavior or actions of all of your employees. One company I worked with gives out awards and recognition to employees who demonstrate socially responsible behavior. For example, taking on a leadership role in a community group or association might get recognition, as might coming up with an idea that helps improve the safety of a product. Decisions by management can also be made in support of corporate responsibility or merely in support of making more money. Each major decision made each month is evaluated on the extent to which it is good for society and the local community.

Outputs

Outputs are quantifiable variables that you can count that help the community or society. These are not your own products or services but are other outputs. For example, Purina measures the pounds of dog and cat food it donates to animal shelters. A food manufacturer measures the pounds of food it donates to food pantries. A restaurant might measure the number of meals it donates to a homeless shelter. A computer manufacturer might measure how many computers it donates to schools. A generic output measure that all organizations could track is hours spent working for volunteer or community groups and dollars donated. These figures can be compared against averages and benchmarks in your industry to see how you are doing.

Outcomes

The difference between outputs and outcomes is that outcomes are something of value to a community or society. An outcome might be to make people healthier. For example, my client AltaMed measures the impact of its programs on childhood obesity. If you work with Habitat for Humanity, an outcome might be the number of families for whom your employees helped build a house. The Asian Development Bank tracks outcomes like reduced poverty, increased access to clean water and electricity, and more females graduating school. Outcome measures are tricky, because an outcome can improve and have nothing to do with the help your company provided. Whatever community outcomes you decide to measure, make sure you can attribute them to the efforts of your organization. Outcomes might also be the avoidance of bad things—for example, a reduction in the use of raw materials produced using improper methods or increased access to your product by more people by lowering prices or improving distribution.

FORMULA AND FREQUENCY

VARIATIONS

Many organizations simply set some objectives regarding key outputs like volunteer hours and donations by employees and track those as their only measure of corporate responsibility. Others only measure their image regarding social responsibility and ethics with the general public and key stakeholders like customers. External image is certainly something to think about including in your index. You could be doing a wonderful job in this area, but no one knows about it so you don’t get any credit for being a socially responsible organization.

TARGETS AND BENCHMARKS

The targets you set for the individual metrics in this index have a lot to do with your overall philosophy and values regarding corporate responsibility. As mentioned in the MIT Sloan Management Review article referenced previously, corporate responsibility can be a strategic advantage and differentiator, particularly in an industry not known for this. All the clothing sold at Whole Foods, for example, is made with organic fabrics and from environmentally responsible farming and manufacturing techniques. I don’t think you would find that to be true of the one-dollar T-shirts at CVS. If being regarded as a leader in this area is one of your goals or part of your strategy, you need to set high targets based on other organizations that excel at this like Microsoft, Google, or Dell.

If, on the other hand, you are just looking to be as good as your peer companies in this area, or to get slightly better than current performance, targets can focus on either maintaining current levels of performance or improving in key areas where there is currently poor performance.

BENEFITS OF DATA

The biggest benefit of having data on your performance in this area is that you will be able to assess whether your efforts really make any difference. Many organizations have a completely reactive approach to corporate responsibility. They wait for charities and community groups to ask for money and volunteers; they wait until a negative story appears in the news about their manufacturing practices (like workers committing suicide at Apple manufacturer Foxconn in China). Companies wait until one of their executives is arrested because of ethics problems to decide they need to do a better job measuring ethics. Smart organizations take a proactive approach to community and corporate responsibility. Almost all large organizations spend time, money, and other valuable resources on corporate responsibility, but very few have any measures on how well their efforts are working other than on activities and donations.

Having a corporate responsibility index that gets tracked every month allows an organization to actually manage this dimension of performance in much the same manner as it manages manufacturing, HR, suppliers, and financial performance. Corporate responsibility is becoming more than just a nice thing to do and a way to get some tax savings. For many consumers and businesses, this is one of the major criteria they look at when deciding how and where to spend their money.

NOTES

1. Remi Trudel and June Cotte, “Does It Pay to Be Good?,” MIT Sloan Management Review, Winter 2009, http://sloanreview.mit.edu/article/does-it-pay-to-be-good.

2. Ibid., 61–62.