How Companies Succeed By Engaging Radically With Society

"Organizations will pay significant consequences if they don't work openly, honestly and proactively with government and society. In order to survive over the long term and gain competitive advantage, companies must learn how to connect profoundly with the world around them -- not only with customers and stakeholders, but also with employees, local communities, politicians, and the environment itself."

This is the advice from the authors of the new book, Connect: How Companies Succeed By Engaging Radically With Society.

The book is all about redefining three discredited words: Corporate Social Responsibility. The authors want to put these at the center of business -- both because it's right and because success in business is inextricably linked to sustainability.

To achieve "connected leadership" you must:

Map your world -- Analyze stakeholders as precisely as your customers, understand trends and discontinuitites, and quantify the value at stake from external relationships.
Clearly and powerfully define your company's contribution to society -- which must be at the heart of the company's purpose, not a side operation.
Apply world-class management to traditionally "soft" societal topics.
Engage radically -- a completely open, proactive and constructive approach to the outside world.

Authors John Browne, Robin Nuttall and Tommy Stadlen kindly answer these questions about their book:

Question: What is the role of business in society?

John Browne: Business exists to serve society; it is the engine of human progress that feeds, enriches, warms and delights us. Computers, cars and antibiotics would not have made it out of the laboratory without companies; and there would be no movies, no mobile phones and no airplanes.

John Browne

Question: What does history tell us about the mistakes that companies make?

John Browne: When it comes to the history of corporate misbehavior, today’s scandals are merely tired reruns of ancient errors. Companies make the mistake of disregarding the concerns of consumers, employees, the environment and government oversight time and again; and for thousands of years it has led to cycles of deep suspicion in business activity.

Tommy Stadlen: History tells us that long-term success is only possible when companies connect with society. The past is littered with the remains of firms that broke these rules. The life expectancy of a leading U.S. company has plummeted in the last century, from 67 years in the 1920s to 15 years today. By 2020 more than three quarters of the S&P 500 could be currently unknown firms. Companies that engage with society will break through; those that do not will fall by the wayside.

Tommy Stadlen

Question: Why is engaging radically with society increasingly critical in today’s new business environment?

John Browne: Engaging radically is about companies connecting with stakeholders on their terms rather than the company’s own agenda.

Today, technology is making all business activity more transparent. People’s tools of communication and organization—from smartphones to social media—are more powerful than ever before. It means society has the ability to better hold business to account for what it says and does, and companies that make the mistake of disregarding society’s concerns are more easily found out.

In this new environment, there is a significant competitive advantage for companies that engage successfully with society. The evidence shows that an uncompromising commitment to be inclusive of all relevant parts of society, from employees, to customers, to NGOs, leads to the sort of engagement that generates 20 per cent outperformance in profits over average competitors in the course of a decade.

Robin Nuttall: There is simply a lot of value at stake for business in connecting well with society, and by society we mean a whole range of external stakeholders—government, academics, NGOs. Essentially McKinsey’s research for the book found that 30% of corporate earnings are at stake from effective connection with these external stakeholders.

To give a couple of examples: in the more classic, regulated utilities industries such as electricity, gas, water, telecommunications, regulations on pricing or on competition can have immediate impact on value. More recently we’re seeing this across a range of broader industries. For example, in food and beverage, where there is now substantial consumer concern regarding obesity, the way that those food and beverage players respond to those concerns, whether it is product reformulation or shifting their promotional activity, impacts their success and their value.

In the basic resource sector, companies that can cooperate well with local communities and governments are much more likely to secure deregulation, which promotes innovation. One implication for corporate communications and PR professionals is then turning the function from being a downside risk mitigator to being a profit center—a potential capability within the company that enables the business to realize its growth objectives.

Robin Nuttall

Question: What are the consequences if business leaders don’t?

John Browne: When it comes to relationships with external stakeholders, research conducted by McKinsey shows that on average, 30 percent of a company’s value is at stake. It means that companies that break their bond of trust with society stand to lose out significantly.

For some companies who have failed to build up a reservoir of societal goodwill over time, breaking their bond of trust with society might even mean losing their license to operate.

Question: What’s an example or two of a company in the news today that could have benefited from a CONNECT approach?

Tommy Stadlen: The Volkswagen emissions scandal is a terrifying illustration of the value at stake. By gaming the system for short-term gains, they destroyed decades of trust overnight. Their shares fell 30% when the news broke. VW was actually top of the Corporate Social Responsibility (CSR) league tables when this happened: it shows just how broken CSR is as a way for companies to ‘deal’ with society. We saw the same thing happen with Enron, which won every CSR award going the same year they caused the biggest bankruptcy scandal in American history.

Another example is the music streaming service Spotify. They unwittingly caused a fierce social media backlash when they changed their Privacy Policy. Leaders who hand over important societal issues to non-core corporate affairs or legal teams do so at their peril.

Question: You interviewed over 80 corporate leaders from around the world for the book. What insights stood out?

John Browne: Across the many interviews we conducted, there was almost universal agreement that Corporate Social Responsibility has failed; plenty of CEOs recognize that companies need a new model of engagement.

We saw excellent examples of companies thinking radically about how to do this. IBM, Unilever and Walmart have already changed the way they define the contribution they make to society, and some CEOs in Silicon Valley are thinking innovatively about how to focus their time on the company’s place in the world and delegate day-to-day management to others.

On the downside however, there are business leaders who recognize that public trust in business can be cyclical and are therefore content to wait for trust to come back rather than engage with people’s concerns. There are also business leaders that continue to maintain that only maximizing shareholder value is a sufficient goal.

Thanks to the book's publisher for sending me an advance copy of the book.

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