CR’s Elephant-in-the Room: Where’s the Money?

CRO is pursuing these questions with vigor for one reason: You corporate responsibility executives must know who owns the results and where the money is.  We refined our global questions to two specific lines of inquiry. Of 12 line functions, which are most accountable for executing which corporate responsibility initiatives? And, just as important, how has the CR initiative impacted company expenses  and revenues? We focused on 12 functions: Sales, Marketing, Operations, EH&S (including Facilities and Transportation), Finance, IT, HR, Law (including Compliance and Governance), Procurement and Supply Chain, Investor Relations, Philanthropy, and General Corporate Management. Because this was a somewhat speculative enterprise, our challenge was to gather meaningful data in a very short time span. So we did what all of our nosy neighbors across the Hudson River from New York City do when they want to find a quick answer to a difficult question: We held a sort of cocktail party, and asked for a show of hands. Our version of that was an online pulse survey, which we conducted September 13 through 15, 2009 over a sample of about 19,000 friends of the magazine; we received nearly 150 responses. The sample was distributed through all sizes of companies, with 29 percent from companies of 100-1,000 employees; 22 percent from 1,000 to 10,000; 21 percent from 10,000-25,000; 16 from 25,000-50,000; and 12 from 50,000-plus.

 

What we discovered was, well, eye-opening.  

 

The dynamic revealed by our survey is best expressed in what we call CRO’s hub-and-spoke model. The hub comprises CEOs and CROs, the strategy-level executives with whom the corporate responsibility buck stops. And the spokes are each of the 12 line functions: Sales, Marketing, Operations, EH&S (including Facilities and Transportation), Finance, IT, HR, Law (including Compliance and Governance), Procurement and Supply Chain, Investor Relations, Philanthropy and General Corporate Management.  Graphically, our hub-and-spoke model looks like this: Exactly three-quarters of our sample group said that they reported directly to the CEO or board on corporate responsibility initiatives in their area of expertise. And as for reporting to outside regulatory authorities, 37 percent reported directly to one or more of them on their CR initiatives, with another 41 percent saying they reported indirectly to regulators.

The most startling results came in the area of financial impact. Fully 61 percent of the respondents said CR programs in their area increased financial performance (i.e., profitability) by between 1 percent and 10 percent. And another 11 percent said CR boosted financial results by more than 10 percent. Based on a pulse survey, we’re not going to take the mathematical leap and conclude that a couple percent of the revenues of the Russell 1000 equals $XXX billion, and therefore CR initiatives deliver that much financial upside. But any thinking individual can see that CR is clearly punching above its weight when it comes to delivering financial results at the line level.  (And, yes, you can count on future CRO surveys exploring this.)

On the financial cost side, 40 percent of the survey-takers reported that CR programs had increased the total cost of their operations by 1 percent to 10 percent, which tracks with the reports that the programs also boost revenues about the same amount. That computes. It confirms that you get what you pay for. But on the cost side, the surprising results were that 28 percent of respondents said the CR program costs were neutral, 18 percent said the CR programs actually reduced (yes, we said reduced) costs from 1 percent to 10 percent, and another 10 percent said that CR programs cut their operational costs more than 10 percent.  

The cost-savings side of the results initially surprised us. But as we started to match the savings up with a few case examples we have heard about—from Chiquita and Shell and Dell and Gap and Coca-Cola—the cost-savings story started to make sense. In Chiquita’s case, it has saved huge costs on herbicides and pesticides in its agricultural operations by planting grass on the banks of its irrigation trenches, rather than keeping the areas clear with costly chemicals.  In Dell’s case, it has reduced the cost of new customer acquisition with its computer recycling program; when their customers get rid of their old PCs, they are sure marks to buy new ones. In looking to cut its carbon impact, Shell has dramatically reduced its energy usage (and costs). In Gap’s case, having a strong CR reputation has been the key to low-cost retail employee recruitment and retention. And Coca-Cola, the world’s single largest corporate water user, has cut its cost of managing water through its environmental conservation efforts.   

Next in the line of headline-grabbers was line managers’ perception of the non-financial impact of CR programs. Some 49 percent said that CR improves non-financial performance (e.g., ability to recruit and retain employees, customer and investor satisfaction, marketing effectiveness, etc.) by 1 percent to 10 percent.  And another 22 percent said it boosted non-dollar results by more than 10 percent. That outcome indicates that CR has an outsized ability to accelerate the effectiveness of company operations. 

The pulse survey also confirmed one of the assumptions we had, which was that the most pervasive of all CR domains across operations is environmental impact.  Fully 77 percent of our respondents reported having direct or indirect responsibility to report on programs impacting the environment, far outpacing their reporting on any other CR-related domain. By contrast, about half of our respondents said they had nothing at all to do with corporate philanthropy. This confirms that while governance and compliance and CSR and philanthropy activities tend to be centralized in specific roles, corporate environmental impact, more than any other CR-related function, is everybody’s business.