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Hearing is a fascinating sensation
Manufacturers, Governmentand Customers in the Context of Corporate Social Responsibility
James RosensteinFellow in the Advanced Leadership Initiative, Harvard University
Herzogenrath, September 23, 2011
25 Years HEAD acoustics GmbH
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– 2 – James Rosenstein25 Years HEAD acoustics GmbH
What is Corporate Social Responsibility?
Many definitions, but simply put:
• Anopportunitytocreatesharedvalue:atthenexusofcorporateassetsandexpertise, businessopportunitiesandsocialneed
• Theintegrationofthesocialandenvironmentaldimensionsofacompany’sactivities intoitsbusinessstrategy,valuesandcorecompetencies • Capitalismforthelongterm • Morethanphilanthropyoramarketingexercise
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– 3 – James Rosenstein25 Years HEAD acoustics GmbH
Why is it important?
• Inherentconnectionbetweenthelong-termselfinterestofcorporationsandpublicinterest • Growingreachandscopeofprivatesector
• In1990,about37,000multinationalcorporationsintheworld.Today,over80,000
• Inthe1990s,70%ofcapitalflowsfromtheUStodevelopingcountrieswasintheformofpublic ODA;today,over70%ofthesecapitalflowsareprivate
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– 4 – James Rosenstein25 Years HEAD acoustics GmbH
Why is it important?
• Crisisoftrust • GrowinginfluenceofNGOs
• Growingactivismoflargeinstitutionalinvestors
• Intangibleassets:reputation,stakeholderrelationships
• Sourceofinnovation
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– 5 – James Rosenstein25 Years HEAD acoustics GmbH
Fromtheendofthewartothe1970s:
• AfterWWIIandtheGreatDepression,theUSeconomyanddemocracyworkingwell
• Unprecedentedwidely-sharedprosperity
• Inequalityofincomeandwealthdeclined
• Largermiddleclassemerged
• Systemforproducinggoodsandservicesfarmorepredictableandstable,moreconcentrated infewlargefirms,e.g.theBigThreeautomakers
• CEOsplayedtheroleofcorporatestatesmen
Historical Perspective: Case of the United States
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– 6 – James Rosenstein25 Years HEAD acoustics GmbH
Case of the United States
Sincethe1970s:
• TechnologiesthatemergedfromtheColdWarchangedtheeconomy
• Newproductionsystemsenabledfragmentingandparcelingoutaroundtheworld– globalsupplychains
• Stableproductionsystemcrackedopen
• Companiesforcedtocompetemoreintensivelyforcustomersandinvestors, whowereabletotakeadvantageofthisnewsituation
• Largefirmsbecamefarmorecompetitiveandinnovative,drivenbyglobalization
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–7– James Rosenstein25 Years HEAD acoustics GmbH
Case of the United States
• Intensifyingcompetitionspilledoverintopolitics
• LobbyistsswarmedWashingtonandothercities,seekingcompetitiveadvantage
• Moneyspentonlobbyingnow:over$3.47billionperyear
• Democraticprocessesoverwhelmed
• Single-mindedfocusonshort-termresultsandshareholdervalue
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–8– James Rosenstein25 Years HEAD acoustics GmbH
Some of the Effects of this Evolution
• Economicinequalityhasreacheditshighestlevelsince1929
• CEOsalarieswentfrom30timestomorethan300timesthelowestwagein2010
• Atthesametime,medianincomehasfallencloseto5%overthelastdecade
• Increasingnumberofsocialproblems,including:higherinfantmortality,lowerlifeexpectancy, criminality,agrowingprisonpopulation,higherunemployment,obesity,malnutrition,teenage pregnancy,illegaldruguse,economicinsecurityandpersonalindebtedness,amongothers
• TheUShasaGinicoefficientalmostidenticaltothatofChina
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–9– James Rosenstein25 Years HEAD acoustics GmbH
Implications for Manufacturers, Government and Customers
• 80%ofcustomerssaytheycareaboutsocialissues,butonly15%actonthatconcern
• Consumerbehaviorisdrivenmostlybypersonalutility–price,style,convenience
• Manufacturersaremainlydrivenbythebottomlineandcompetitiveadvantage
• Politiciansarelargelydrivenbylongevity,thedesiretostayinpower
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–10– James Rosenstein25 Years HEAD acoustics GmbH
What will it Take to Restore the Basic Bargain between Business and Society?
For manufacturers:
• Leadershipthatiswillingtolookatthelongerterm
• Willingnesstounderstandtheinherentconnectionbetweenbusinessandsociety
• Opennesstotheconnectionbetweencompetitiveadvantageandsocialissues,often throughinnovation
• Willingnessandabilitytoengageinconstructivedialoguewithgovernment
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–11– James Rosenstein25 Years HEAD acoustics GmbH
Basic Bargain between Business and Society
For manufacturers:
• Optimizedcontributionofexistingbusinessoperations
• Responsiblebusinessstandardsandaccountability
• Moreeffectiveboards–bettergovernance
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–12– James Rosenstein25 Years HEAD acoustics GmbH
Basic Bargain between Business and Society
For government:
• Abilitytoestablishframeworks,regulatoryandother,thatpreserveandpromotesocialwelfare
• Abilitytoencouragebusinesstomeetagreedsocialandenvironmentalperformancecriteria
• Abilitytohaveaconstructive,lessadversarialrelationshipwithmanufacturers
For customers:
• Findwaystoovercomethecustomer/citizendivide
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–13– James Rosenstein25 Years HEAD acoustics GmbH
Examples of Progress
• UScarmakerssupportingtheincreaseoffuelefficiencyfrom27mpg(8.7l/100km) to54.5mpg(4.31l/100km)by2025
• Gradualphase-in,incentivesforproducingbattery-poweredvehicles,hybridsand alternativefuelmodels
• Willingnesstounderstandandnegotiateonbothsides
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–14– James Rosenstein25 Years HEAD acoustics GmbH
Examples of Progress
Danish government: • EncouragesinvestorsandcompaniestodevelopcommitmentandCSRwork
• MandatoryforlargebusinessestoreportonCSR
• SocialResponsibilityCounciltomakerecommendationsforthegovernment, corporationsandassociations
• FocusonCSRinstateprocurement,investmentsandstate-ownedpubliclimitedcompanies
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–15– James Rosenstein25 Years HEAD acoustics GmbH
Nottounderestimatethe
inherenttensionbetween
theobligationtomaximize
shareholdervalueandthe
interestinmaintaininga
broader,socialimpact.
Thereareinevitabletrade-
offs,andallcompanies
havetofacethem.
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–16– James Rosenstein25 Years HEAD acoustics GmbH
How is it paying off?
• Newproductsandmarkets
• Enhancedproductdifferentiation
• Interestingareasofinnovation,e.g.businessatthebaseofthepyramid,socialentrepreneurship
• Hybridmodels,addressingdevelopmentproblemssuchasashealthcare,education
• Betteroperationalefficiency
• Lowercosts
• Morecommittedandmotivatedstaff
• Greatersupplierreliability
• Improvedreputation