Corporate Citizenship Redefined: Trust, Inclusion, and Responsibility
We live in a strange time. 46% of citizens around the world believe the system is failing, fewer than 50% trust their government, and income inequality continues to grow. In California, where I live, almost 2/3 of citizens believe the technology industry is secretive and more than 60% believe these firms are draining local resources for their own benefit.
I have been fortunate in my career, but only a mile from my home I see homeless people, encampments, and mothers and families asking for money on the streets. The cost of housing continues to skyrocket (one estimate but the inflation rate in the San Francisco Bay Area at 25%) yet teachers wages have barely kept up with inflation. And this makes people worry.
Today, however, CEOs are finding the landscape harder to navigate than ever. If the government cannot effectively solve the problems of homelessness, poor healthcare coverage, income inequality, and high cost of housing, should we step in? And who are our real stakeholders: are the shareholders our primary constituents (as Milton Friedman taught us)? Or should we be taking care of our communities and social systems as well?
I’ve been a capitalist my entire life, and after years of engineering and business school have always believed in small government, a robust business climate, and the power of employers to make our lives better. And I experienced this result in my career: my first employers Exxon and IBM each took great care of me, and as an employer myself I always believed my responsibility was to be generous and honest to the people around me.
Company brands are also as fragile as ever. Amazon, one of the companies most respected by consumers and entrepreneurs, was pilloried by the media when they decided to game US cities in a scheme to find a new corporate headquarters. Starbucks was blamed for the behavior of a single store employee, and companies like Facebook, Volkswagen and Wells Fargo may never recover from their corporate behavior.
Google, a company that was founded on the principle of “not being evil,” was just fined $1.7 billion by the EU for anti-competitive activity and suffers regular protests by its own employees. And even paragons of capitalism like Bill Gates have to justify their wealth, despite the fact that they spend most of their time finding ways to help society. (Anand Giridharadas book Winners Take All will make you think twice about philanthropy.)
The Conscious Capitalism movement, which has been around for more than a decade, has been trying to address this issue. The iconic book Firms of Endearment, authored by Raj Sisodia, David Wolfe, and Jag Sheth, was the first book I ever read that taught me the bigger role of business in society. And while this movement has grown, but somehow it hasn’t quite caught fire. Perhaps it doesn’t deal with the issue that Robert Reich eloquently discusses in his books, that without strong government, responsible capitalism simply cannot survive.
I think we have entered a new era, one where corporations must act as citizens, and consider all that this implies. I believe we need a new model of “sustainable capitalism,” which brings together all the elements of citizenship, in a new form that corporations understand. In this article I’ll try to explain it, and later this Spring I’ll publish more, as I speak on this topic at the IMPACT conference in a few weeks.
If you look up the word “citizenship” in various dictionaries, it’s essentially defined as “an individual’s role in a group as a contributor to the collective well-being and health of the society.” As citizens we have rights and privileges but also responsibilities and roles to fulfill.
Citizenship: An individual’s role in a group as a contributor to the collective well-being and health of the society.
There are quite a few important concepts to consider here.
First, Understand The Need For “Collective Well-Being.”
In a society (or company), the collective is as important as the individual. So as much as we want to optimize our own place in life (wealth, career, job level, position), we cannot succeed at this unless the collective organization is healthy too. This issue plays out in politics every day, and in business it’s an essential to the new world of management.
In your company, are individuals promoted at the expense of others? Do people compete for top jobs and do you have “winners and losers” at work? Are there individual goals and bonuses or are people rewarded for the success of their teams? This is a complex issue, but one that I believe every company grapples with as it thinks about management, rewards, and corporate culture.
When I interviewed the HR leaders at IKEA they told me their Swedish culture results in a tremendously collective culture. The company shares goals, all people sit on many committees, and they believe in a process of “collective decision-making” for every major business decision. Decisions are made slowly, but they are made as a group – so when a decision is made, everyone is already bought in. Companies like John Lewis in UK share equity among all their partners, again bringing collective thinking to the culture.
If your company is a dog-eat-dog culture where people compete with each other, you’re probably not creating good citizenship inside the organization. You may find growth and success during good times (like the US economy today), but when bad times come this culture will work against you.
By the way, if you really want an allegorical look at collective thinking read the book “The Hidden Life of Trees.” It will teach you that even trees work together, sharing food and nutrition under the ground to protect their forest against outside forces. They don’t “compete” for light, they work together to make sure all their peers can thrive together against other forces of nature. When the mother tree shades her saplings from the sun, she is actually helping her grow strong so that when she dies it can flourish with endurance.
And by the way, being a collective culture means acting in a fair and inclusive way too. Society thrives when we find ways to work together, regardless of our differences. Study after study proves the same in business as well. Even trees thrive on diversity: they deliberately cross-pollinate because it makes them stronger and more drought and pest-resistant.
Second, Define Employees As An Asset, Not An Expense
The second concept of citizenship is the value of the citizens themselves. I believe we have to rethink the role of employees as equal stakeholders, not workers. When you study business and economics in school, you are often taught that “labor” or “wages” are an expense. In other words, customers are your number one goal (they produce revenue) and labor is essentially a “negative” by creating cost in your goal for profit.
This type of thinking leads to automation, outsourcing, and all sorts of friction in employee-driven investments. Should we increase health care coverage? Should we spend more money on training? Should we give people a raise?
All these decisions are difficult because they feel like “costs” to the CFO and of course they reduce cash flow to the business and can ultimately hurt the bottom line.
But in a company that acts as a good citizen, I’d suggest you think about this differently. As I describe in the Why Arent Wages Keeping Up? It’s Not The Economy it’s Management, in a society citizens are really our goal. In a business, employees are an asset not a cost.
And by the way, this means treating employees fairly. Today US CEOs make 361 times the wage of the average worker (up from 271 last year@!). Is that an example of thinking about employees as valued assets?
This is such a simple concept, but we often don’t live this way. Employees, unlike machines or software, are what I call an “appreciating asset.” As we invest in our people, they become more experienced, skilled, and trusted. They work better together, they innovate more easily, and they serve and attract customers in a more positive way.
As a leader I have always been in awe of my employees: I feel dependent on them, I admire them, and I always think about what I can do to make them happy. Today, when the unemployment rate is as low as I’ve ever seen it, employees can often find other jobs – so if you aren’t investing in them they’re looking elsewhere. So a continuous investment in employees is the #2 topic in citizenship.
Third, Take Care of The Environment And Local Community
The third area of corporate citizenship is thinking about employee’s families, communities, and the society in which we live. The whole industry of corporate social responsibility is focused here, and this is where topics like environmental impact, water usage, and thinking about what’s “good for people” comes into the board room.
If you’re a pharmaceutical company, healthcare company or other business in the service of well-being, this has to be part of your core. Genentech, a company I admire greatly, prides itself on constantly reminding its employees about the lives they’ve saved. There are stories about patients who’s lives have been saved all over the offices.
But today Citizenship impacts all industries, even financial services.
I met with a bank in western Canada who is one of the most engaged teams I’ve ever met. Why? They define their mission as “making families happy through their financial success,” clearly a mission we can all relate to. The company offers low cost loans, gives away many free services, and continuously thinks about how it can make families lives better. They are profitable, growing, and one of the best employers in their region.
Consumer packaged goods companies understand this well. Unilever, General Mills, Procter & Gamble, and Nestle spend millions on programs to understand and improve local communities, and it helps them become a trusted brand among their consumers.
An example of this topic is the recent media battle between Kind Bar and Clif Bar. The CEO of Clif Bar sent an open letter to the CEO of Kind to challenge them to do business in an organic way. Kind responded with a challenge for Clif to remove sugar. Both are aspirational goals that ultimately come down to citizenship. A new war is waging to see who is the “best citizen,” and this just points out how important these issues have become.
Levi’s, a company I grew up admiring here in the San Francisco Bay Area, takes this so seriously they have invested tens of millions of dollars in a new Jeans manufacturing process that reduces water usage by over 90% and dramatically reduces the environmental impact of the most tailored, stylish jeans. I met with the Levi’s executives a few weeks ago and the company has a long history of taking care of its communities, the environment, and its supply chain as well.
The most iconic example of this topic is Unilever, a company that was the merger or Lever Brothers and Jurgens (margarine) founded on the principle of saving lives through disease preventing soap in the 1880s. I wont recap all the wonderful things Unilever does, but it’s a constant investment for them – taking care of their communities, employees, and customers in powerful and unique ways.
Salesforce, another local company I have admired for years, invests in its community through its 1-1-1 program (1% of profits and 1% of employee investments go to the community), Marc Benioff’s personal gifts to hospitals, and a continuous effort to help employees spend time and energy in the community (even writing an annual social impact report that reports on its impact on society). I would never think of cancelling my Salesforce license, almost out of goodwill more than simply taking care of our sales teams!
Fourth, Serve As A Trusted Example For Society
The fourth dimension of citizenship is the hardest of all. We are now in an era where the most trusted institutions in the world are our employers. We hardly trust the political system, our economy may or may not be doing what we desire, and we feel a growing worry about global warming and other lifestyle issues. And AI, as exciting as it is, has the potential to create bias, mistrust, and fear. How can companies be an “example” for others to follow?
As we are going to talk about in the Deloitte 2019 Human Capital Trends study (which comes out soon), the real issue here is being a responsible and trusted entity in the world.
When I read stories of Wells Fargo, Volkswagen, Purdue Pharma, Facebook, and other companies acting illegally, lying, or employing business practices that are clearly anti-competitive, unfair, or just unethical, I just cringe. I’ve worked for over 45 years: I know how important it is to “win in the market.” But can companies afford to “win at any cost?” I think those days are coming to an end.
CEOs and other corporate leaders wield tremendous power in society today. They have millions of billions of dollars to invest; they manage the welfare of thousands or tens of thousands of employees; and their products and services reach thousands to millions of people. Is making a profit the only thing that matters? Of course not.
As I have learned over the years, businesses exist for a purpose – and that purpose or mission is usually very clear in the beginning. Profits are not a goal, but rather an outcome of a mission. As soon as companies start “chasing profit” and “worrying about market share” every day, it becomes easier and easier to drift from your principles.
If a newspaper reporter read your emails and listened to your company’s conference calls and internal meetings, is there anything you’d be embarrassed about? If the answer is yes, you should think about your business differently.
Here’s a rule I’ve tried to follow, and it’s one I believe many CEOs also understand. Rather than wake up in the morning and think about “how can I beat my competition” or “how can I extract more value from my customer” by raising prices or reducing cost, think about “how can I add more value to my stakeholders” and “how can I innovate, get closer to my client’s needs, and organize even better to deliver great service?”
I guarantee if you go back to your core and focus in these areas, profits will follow. Twisting the truth, bending the rules, and doing things you know aren’t right will hurt you in the long run, and in today’s economic environment, trust is the most important thing you have.
Bottom Line: Trust Is All You Have
In many ways, citizenship is all about trust and responsibility. I recently interviewed the research team at Great Places to Work, a wonderful company that has studied employee engagement and company cultures for more than 30 years. I asked their head of research “after all these years, what has really come out as the strategies that matter the most?”
He made an interesting observation. “We’ve looked at companies that do all sorts of things; free food, healthcare, family benefits, pay, and rewards… but after looking at them all, we found that all these programs don’t really matter. What matters the most is a sense of trust: employees feeling they can trust their business leaders and that the leaders are really looking out for them every day.”
This simple answer is what citizenship is all about. Act on behalf of the collective; take care of your people, customers, and communities; play a positive role in society; and build a culture of honesty, fairness, and trust.
These things are simple to write, but often very hard to do. In a world where making money, growing profits, and beating the competition is lauded above all else, I think the topic of citizenship is now more important than ever.
Let me make one final point. In my 45+ years in business I’ve worked for many companies that did well and then fell on hard times. When your product is hot and you’re the best in the market, you can do no wrong. Customers and shareholders love you, and you’re automatically a genius.
But once things slow down, you miss a product cycle, or you have a flaw in your offering, the game suddenly changes. Companies that act as good citizens have the strength of self-healing and recovery when bad things happen. People rally around your reinvention, employees sacrifice for the greater good, and customers remain loyal during tough times.
Think about your company’s citizenship. Is it what you’d like it to be? I hope this article gives you some inspiration and new ideas, I’ll give you more detail on this topic in the months to come.