Corporate responsibility: Burden or opportunity?

How executives are developing corporate responsibilityprograms, and the impact those programs are havingon corporate strategy and profitability.

Grant Thornton LLP Survey of U.S. Business Leaders15th edition

Table of contents

This report is published by Grant Thornton LLP and BusinessWeekResearch Services. It is not intended to answer specific questions orsuggest suitability of action in a particular case. The editorial department ofBusinessWeek was not involved in this project.

Electronic version availableTo see or use an electronic copy of this document in PDF format, pleasevisit www.GrantThornton.com/blsurvey.

© Copyright 2007 Grant Thornton LLP. All rights reserved.

Executive summary 1

Introduction 2

The current business climate 3

Corporate responsibility considered 4

What is driving corporate responsibility? 5

Implementing corporate responsibility initiatives 7

Leadership opportunities 9

Measurement and reporting 11

The role of government 14

1

Executive summary

Grant Thornton’s 15th Survey of U.S.Business Leaders focuses on the topic ofcorporate responsibility. Conducted inpartnership with BusinessWeek ResearchServices, the survey polled 510 seniorbusiness leaders. Important findingsinclude:

• Despite a decrease in economic andbusiness optimism, executives expectmore resources will be allocated tocorporate responsibility initiatives.

• Executives are supporting corporateresponsibility initiatives not just forcompliance or image reasons, but becausethey believe corporate responsibilityimproves profitability.

• Interest in corporate responsibility issuesis unlikely to fade over time becauseactivities are becoming part of standardbusiness practices.

• Greater internal leadership, alignmentand measurement are needed to derivefull potential from corporateresponsibility programs.

• While some costs and resourceconstraints are potential obstacles toprogram success, other issues, such ascorporate culture and measurement, areequally critical.

• Executives believe social responsibilityprograms may provide the greatestopportunity for companies to breakaway from the pack and demonstrateleadership.

• Executives welcome increasedgovernment regulation regardingcorporate responsibility because they seeit as a way to ensure that everyone playsby the rules.

In June 2007 Grant Thornton andBusinessWeek Research Services (BWRS)conducted a study to explore executives’views on corporate responsibility (CR).Goals included assessing the current anddesired levels of corporate responsibilityprograms at companies, as well asdiscovering how executives perceive thevalue of such initiatives. The research alsogathered information on issues involvedin developing corporate responsibilityprograms and ways to integrate them intooverall business strategies.

This white paper provides insights andanalysis of the study results. Specifictopics covered include:

• Momentum and viability of corporateresponsibility programs

• Impact of corporate responsibilityprograms on business strategies

• Social, environmental and economicaspects of corporate responsibility

• Benefits of corporate responsibilityprograms and obstacles to success

• Government’s role in setting corporateresponsibility standards

• Best ways to measure and reportcorporate responsibility programs

The research includes both quantitativeand qualitative components:

1. An online survey of executives fromlarge and midsize companies who aremembers of the BusinessWeek MarketAdvisory Board — a panel of more than18,000 business leaders and executives.A total of 510 executives across the U.S. were surveyed in June 2007. More than a quarter of the respondentswere CEOs, COOs, CFOs, CIOs or CMOs.

2. In-depth telephone interviews withsenior officials at large and midsizecompanies known to be activelyinvolved in developing corporateresponsibility programs for theircompanies.

2

Introduction

41%

Survey demographics

Respondent titles

27%32%

18%

24%

16%

42%

Company size

$50M - $99M

$100M - $499M

$500M - $999M

$1B+C-level executivesDirectors

Executive VPs, VPs/GMs

N = 510

Industry

Geography

31% Manufacturing69% Services

Ownershipstructure 37% Private63% Public

27% Northeast 28% South 17% Midwest 28% West

3

The current business climate

Grant Thornton Business Optimism Indexpoints to a weaker economy

5/02 11/02 5/03 11/03 5/04 11/04 5/05 11/05 5/06 11/06 6/07

75.5

68.5

70.9

75.6

73.9

72.8

68.6

67.2

62.8

64.1

59.5

Grant Thornton’s Business Optimism Index is a composite measure of responses to questions on the overall economy and a company’s general business and hiring outlook.

To understand the true meaning andimpact of the study results, it helps to stepback and note the state of the broadereconomy.

In June 2007 when the data was collected,signs were already pointing to a less stableU.S. economy. In fact, the GrantThornton Business Optimism Index, ameasure of the business community’sconfidence taken every six months, was ata seven-year low, an indication that hiringand growth expectations were trendingdownwards.

Additional indicators during this timesupported an increasingly uneasybusiness climate. Stock market volatility,widely fluctuating oil prices and realestate jitters were all emerging in earlysummer.

Under such conditions one might expectspending forecasts to be lower for anyinitiative not directly related to the corebusiness. Yet the survey reveals interestand investment in corporateresponsibility initiatives is expected toincrease. Further, it suggests that mostexecutives perceive that corporateresponsibility initiatives will not harmprofitability, and may even protect orenhance it.

Corporate responsibility is a concept thatis primarily focused on accountability. Itproposes that corporations should beanswerable for their actions and for theimpact those actions have on stakeholders,including consumers, employees,shareholders, suppliers, communities andultimately the global environment.

The field of corporate responsibility isoften divided into the following threebroad categories, which have also served asthe organizing framework for this report:

• Economic: how businesses report theirfinancial performance and adhere tocompliance regulations and governance

• Social: how businesses affect the well-being of people in a society

• Environmental: how businesses helpor hurt the environment

The survey probed how comfortablerespondents were with including variousitems under the umbrella of corporateresponsibility, from affordable health careto human rights. The results show that asurprising majority of business executivesbelieve that corporations need to step upto the plate and move the needle on manyof these important issues.

Executives also said that the differentcomponents of corporate responsibilitybenefit their organizations in differentways. For example, they believe that thegreatest advantage of social responsibilityprograms is their impact on publicopinion, customer relations and talentretention. Economic responsibilityprograms are most beneficial in terms ofthe investment community, whileenvironmental programs derive theirgreatest benefits from improved publicopinion, customer relations and

innovation. Surprisingly, executivesbelieve that environmental responsibilityprograms have little effect in attracting andretaining employees.

4

Corporate responsibility considered

How responsible should companies be?

Sale of safe products/Services to the public

Transparency of business and financial operations

Safe and clean environment

Employee/Worker rights

Human rights

Affordable health care

Economically stable communities

Philanthropy

Improved education standards

Adequate standard of living for society

83%

80%

77%

52%

43%

41%

34%

34%

32%

94%

N = Varies 503 – 506

Benefit Index: Deriving benefits from corporate responsibility

Benefit Index: 100 = Overall Social Environmental EconomicAverage benefit of corporate corporate responsibility responsibility responsibilityresponsibility programs responsibility programs programs programs

Improves public opinion 195 240 227 117

Improves customer relations 160 226 156 95

Attracts/Retains talent 114 170 78 91

Attracts investors 100 66 63 172

Reduces financial risk 88 31 86 150

Encourages innovation 84 56 134 66

Provides tax credits 63 45 93 51

Improves stock price 58 28 33 113

Improves supplier relations 39 38 30 47

N = 510

5

What is driving corporate responsibility?

While some aspects of corporateresponsibility are mandated by law (thinkOSHA regulations, Sarbanes-Oxley or caremission standards), most executives citedparties other than the government as thegreatest drivers of corporate responsibilityinitiatives. Almost half of respondents(45%) say that they are most likely toreceive pressure to implement suchprograms from consumers or the generalpublic. In addition, a fifth of respondents(21%) say that they are most likely toreceive this pressure from investors.

When asked what would trigger greaterenvironmental responsibility efforts, theoverwhelming majority of respondents(95%) agreed that tax incentives headedthe list. Customer recognition and theavailability of new technologies were alsokey factors.

Regardless of who or what drives theseinitiatives, executives believeresponsibility correlates with profitability.Eight out of ten executives (77%) say thatcorporate responsibility programsenhance profitability. At the same time,only three out of ten executives (28%)think that corporate responsibilityprograms lead to profit sacrifices.

Where will the pressure come from?

45% Consumers/general public

21% Investors18%Government

Media 7%

Executives 6%

Other 3%

N = 509

“Customers are so in tune with what companies do. They can researcha company’s background to no end on the internet, and when theyresearch, they act. So you have to be responsible.”

- VP of marketing

What encourages investment in environmental responsibility?

Tax incentives

Customer support/Recognition

Availability of new and innovative technologies

Public health and safety issues

Availability of alternative energy sources

Global/Foreign pressure

Sense of obligation to future generations

59%

50%

44%

38%

39%

24%

23%

36%

45%

50%

53%

54%

57%

47%

5%

5%

6%

9%

7%

19%

30%

N = Varies 474 – 482

Strongly encourages Somewhat encourages Does not encourage

“Corporate responsibility programs are no longer PR or marketingtactics. Corporate responsibility is part of our business, because it’swhat our customers are demanding.”

- VP of marketing

Looking ahead, executives say they expectcorporate responsibility initiatives to havea significant role in future corporateperformance: eight out of ten executives(77%) say that these programs will have amajor impact on business strategies duringthe next few years. A far lower percentage(16%) believe corporate responsibility issimply a business fad.

Given that such a high percentage ofexecutives believe corporate responsibilityprograms correlate positively withprofitability, it makes sense that companiesare incorporating them in their overallplanning. In fact, when asked whetherimplementing corporate responsibilityprograms was important to achieving theircompany’s strategic goals, two-fifths ofrespondents (40%) said it was eitherextremely or very important. While thiswas lower than such core strategicinitiatives as customer service andinnovation, corporate responsibility isclearly in the mix.

6

“Sure we want to look good in the realm of public opinion, but today,being responsible has quantifiable dollar and cents impact on our business.”

- Director of corporate affairs

Corporate responsibility is here to stay

N = Varies 501 – 503

Agree Neutral Disagree

Corporate responsibility initiatives can enhancecompanies’ profitability

Corporate responsibility will have a major impacton business strategies over the next few years

Profits need to be sacrificed toimplement corporate responsibility initiatives

Corporate responsibility is just another business fad

76% 17% 7%

27% 30% 43%

16% 22% 62%

77% 17% 6%

Importance of corporate responsibility to achieving strategic goals

Extremely/very important

N = Varies 499 – 506

Extremely or very important to achieving 2007 strategic goals

Innovation practices (e.g., new products, services, processes) 79%

Customer service programs (e.g., retention and loyalty) 77%

Applying and leveraging technology 73%

Cost containment/reduction initiatives 66%

Performance management initiatives 58%

Corporate responsibility programs 40%

7

Implementing corporate responsibility initiatives

The survey included questions about thecurrent way in which executives managecorporate responsibility, as well as howresponsible they feel their own companiesare with regard to a variety of corporateresponsibility issues, such as safety andfinancial transparency. It also exploredviews on who should take charge ofdifferent initiatives to optimize theirimpact.

Corporate responsibility as a discipline isclearly in its infancy, and this is reflected inthe wide discrepancy among respondentson the question of who should be taskedwith implementation.

Respondents were more likely to agreethat a particular department or functionwithin the organization should beinvolved with the different categories ofcorporate responsibility initiatives. Whenasked which three groups were mostimportant to each type of program, nearlytwo-thirds (64%) felt human resourcesshould play an important role in socialresponsibility programs, while over half(58%) thought environmental initiativesshould have participation fromproduction/manufacturing. In what mayseem a surprisingly low result, just overhalf (57%) said finance was one of themost important groups to be involved ineconomic responsibility programs.

Who should take the lead? Respondents disagree

Social Environmental Economic responsibility responsibility responsibility programs programs programs

CEO/President 18% 9% 7%

Board of directors 16% 8% 10%

General Counsel/Chief Legal Officer 16% 11% 7%

CMO 12% 17% 4%

Audit committee 7% 7% 18%

CIO/CTO 7% 12% 14%

COO 6% 23% 5%

CFO 2% 2% 28%

Other 16% 11% 7%

N = Varies 501 – 509

Which three groups should be involved in CR initiatives?

Social Environmental Economic responsibility responsibility responsibility programs programs programs

Human resources 64% 12% 18%

Public/Governmental affairs 50% 30% 26%

Marketing 34% 17% 19%

Investor relations 27% 13% 30%

Legal 25% 21% 24%

Compliance 23% 30% 23%

Operations 16% 50% 19%

Sales 11% 7% 16%

Production/Manufacturing 10% 58% 12%

Finance/Accounting 9% 7% 57%

Internal audit 8% 8% 28%

Logistics 3% 24% 8%

Other 9% 8% 6%

N = 510

A small minority of companies have takena different route to organizing theircorporate responsibility programs: one-fifth of those surveyed (19%) saidthey have a single point person responsiblefor overseeing all of these initiatives,regardless of what bucket they fall into.

It is probably too early to tell whetherhaving a single point person, sometimescalled a Corporate Responsibility Officer,or CRO, is a “best practice” for managingcorporate responsibility, but the surveyresults suggest some potential clues.Respondents were asked at the beginningof the survey how responsible theythought companies should be for 10 areasthat corporations could potentially impact(see chart on page 4, “How responsibleshould companies be?”).

At the end of the survey, respondents wereasked how responsible they thought theircompanies were for these same areas. Wethen compared the responses of those whosaid they had a single point person withthose who did not.

Across the board, executives whosecompanies do not have a specific corporateresponsibility point person consistentlyreported that their companies were lessresponsible than those executives whosecompanies do have such a person.Whether companies with CROs performbetter because they have a single pointperson, or whether companies that placean emphasis on corporate responsibilityare the ones more likely to have CROs, isan open question.

8

Companies with Corporate Responsibility Officers

81% No CROCRO 19%

N = 504

9

Leadership opportunities

In four areas, more than three-quarters ofrespondents felt that companies should beeither extremely or very responsible. Wehave designated these the “givens” or“table stakes” of corporate responsibility:

• Sale of safe products/services to thepublic

• Transparency of business and financialoperations

• Safe and clean environment

• Employee/worker rights

When asked how well their owncompanies performed in these areas, therewas a significant gap between reportedperformance and how responsiblerespondents thought companies ought tobe. We’ve labeled this the “aspirationalgap.” The aspirational gap narrows forcompanies with a CRO.

“Aspirational gap” for core areas of corporate responsibility

94%

Transparency of business and financial operations

Sale of safe products/services to the public

Safe and clean environment

Employee/worker rights

80% 77%83%

74%

62%

80%

64%

51%

77%69%

57%

N = varies 503 – 506

Companies should bevery/extremely responsible

My company is very/extremelyresponsible (CRO)

My company is very/extremelyresponsible (No CRO)

“Environmental and financial responsibility are givens for largecompanies. …The real opportunity for companies to be proactive andbecome more responsible is in improving education and health carestandards. This is where we can lead, and if we invest in these areas ona social level we will help our top and bottom lines.”

-VP of PR of a $5 billion computer manufacturer

Beyond the table stakes, however, thestory looks somewhat different. In sixother areas, significantly fewer executivesagreed that companies should beresponsible:

• Human rights

• Affordable health care

• Economically stable communities

• Philanthropy

• Improved education standards

• Adequate standard of living for society

In these areas, executives felt theircompanies’ performance exceeded whereit ought to be — in other words, theaspirational gap reversed itself — and onceagain, companies with CROs performedbetter. For example, only 34% ofexecutives felt that companies should beextremely or very responsible forphilanthropy. Yet 39% (36% of thosewithout CROs and 53% of those withCROs) said their own companies wereextremely or very responsible in thisregard.

10

“Aspirational gap” for other areas of corporate responsibility

Human rights

52%57% 56%

Affordable health care Economically stablecommunities

Philanthropy Improved educationstandards

Adequate standardof living for society

43%

55%

46%41%

45%

36% 34%

53%

36% 34%

52%

42%

32%

46%

37%

N = varies 503 – 506

Companies should bevery/extremely responsible

My company is very/extremelyresponsible (CRO)

My company is very/extremelyresponsible (No CRO)

Public perception is that companies have done well over the last sevenyears; companies have cash and profits. The public is looking moretowards corporate America to help with social programs such aseducation, health care and community development.

11

Measurement and reporting

As companies move to adopt andformalize their corporate responsibilityinitiatives, measuring results is likely tobecome an increasing topic of discussion.Furthermore, governmental regulation inareas such as financial reporting andenvironmental safety will create newbenchmarking standards.

Groups have already emerged withcorporate responsibility reportingframeworks. Probably the best known isthe Global Reporting Initiative(www.globalreporting.org), whoseSustainability Reporting Framework helpscompanies assess their performance in allthree areas of corporate responsibility.

To date, however, many of the corporateresponsibility reports published — oftenreferred to as “sustainability reports” or“triple bottom-line reports” — areinformal accounts that use homegrownmetrics and case examples. Companiesthat produce sustainability reportsconsider them a means of communicatingtheir core values to investors, customersand other stakeholders.

Despite the value of sustainability reportsas communications tools, less than a thirdof companies (29%) surveyed producethem, either internally or externally. Over half of executives (55%) say theircompanies have no plans to publish such reports.

Companies producing sustainability reports

55%Already produceand publish externally

11%

Will produce this year

18%No plans to produce

6%

Already produce forinternal use

8%

2%Will produce within 5 years

Will produce within 3 years

N = 483

One reason some companies are on thefence with regard to sustainabilityreporting may be confusion and indecisionover appropriate metrics. When askedwhat criteria should be used to assesscorporate responsibility, “compliance withenvironmental laws” and“fraud/corruption convictions” were theonly two that a majority of executives saidshould definitely be in mix.

12

N = Varies 482 – 485

Should definitely Should probably Should probably Should definitely be used be used not be used not be used

Compliance with environmental laws 64% 32% 3% 2%

Conservation efforts 41% 49% 8% 2%

Health and safety investigations of products and services 46% 43% 9% 2%

Rates of employee injuries and work-related fatalities 40% 46% 12% 2%

Fraud or corruption convictions 50% 35% 12% 3%

Energy consumption 37% 46% 14% 3%

Greenhouse gas emissions 38% 45% 11% 6%

Training provided to employees 28% 52% 18% 2%

Human rights of foreign subsidiaries/suppliers 29% 48% 18% 4%

Economic value generated by a company 30% 46% 19% 5%

Organizations or causes to which company contributes 20% 45% 25% 10%

Male-female salary ratios 15% 34% 36% 15%

Number of lawsuits 11% 31% 41% 17%

Which metrics should be used to measure corporate responsibility?

13

With the exception of financial reporting,corporate responsibility reporting is notmandatory. However, two-thirds of thosesurveyed (68%) say they expectenvironmental responsibility reportingwill be mandatory within the next three tofive years, and a third (35%) thinkreporting on social responsibility will berequired.

Expectations for mandatory corporate responsibility reporting

34% Within the next 3 years22%

10%

Within the next 10 years

Environmental responsibility reporting

Social responsibility reporting

Never

12%

23%36%

Within the next 10 years

Never

34%

29%

Within the next 3 years

Within the next 5 years

Within the next 5 years

N = Varies 492 – 497

Almost three out of four executives (71%)believe that consistent corporateresponsibility standards are needed inorder to level the playing field amongcompanies. One way to achieve suchstandards is through governmentinvolvement. In fact, the survey resultsshow that the majority of respondents(54%) believe that the government shouldbecome more active in supporting andencouraging corporate responsibilityinitiatives.

14

The role of government

You really need government standards around environmentalresponsibility. Environmental impact is somewhat of an art dependingon the science or math that you use. This is where the government canhelp — just set the baseline and if companies want to exceed it, it becomes a competitive advantage.

- CMO

Should government be more active in encouraging corporate responsibility?

36%

Strongly agree

22%

17%

Neither agree nor disagree

Disagree 16%

9%

Agree

Strongly disagree

N = 501

15

Should government regulate companies for corporate responsibility?

Yes72%

No 13%

Maybe 15%

Their effect on the environment

Their effect on human rights and labor practices

Their effect on the communities in which they operate

Yes56%

No 22%

Maybe 22%

Yes35%

No 40%

Maybe 25%

N = Varies 501 – 503

Beyond supporting corporateresponsibility, many respondents actuallyfelt that government should step in andregulate it. They felt more regulation iswarranted in environmental areas than insocial areas, perhaps because of theimportance of setting baseline standards.

Regardless of how they feel aboutgovernment involvement, many agree thatmore regulation is inevitable. About aquarter of respondents expect moreregulation around social (28%) andeconomic (26%) responsibility within thenext five years, while 70% believe we willsee increased government regulation ofenvironmental responsibility.

16

Despite these attitudes, executives saidthey don’t want the government tobecome too controlling, restrictive orstifling. Many executives believe thatcompanies can avoid excessivegovernment intervention by beingproactive in their responsibility efforts.This is evident from the emergingconsensus that companies, notgovernment, will make the biggestdifference. As noted earlier, eight in tenexecutives (77%) believe that

corporations must lead the way inworking toward the sustainability of theplanet; only four in ten (44%) believe thatlegislation and governmental policiesultimately drive corporate responsibility. It is this attitude that may truly reflect thefuture of corporate responsibility: moreand more companies taking the bull by thehorns, setting the agenda and developingsolutions for the knotty issues thatimpact our society and our world.

“The best way to keep government regulators at bay is to do it yourself;don’t make them impose their perception of what people want in termsof social and environmental responsibility. The government has aunique way of misinterpreting what people want and turning it intopolicy. Companies do a better job of gauging what people really wantand are better at providing it.”

- CMO

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