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What the smart CEO needs to know

CEOs and other corporate leaders often lack direct knowledge and experience in managing social responsibility challenges. How can they maintain their focus on value creation while minimising the potential disruptions to their business from these increasingly powerful external forces?

There are five essential issues that CEOs should focus on to achieve the appropriate integration for their companies' private and public responsibilities:

q Recognise that demands for corporate social responsibility reflect a shift in society's priorities. With the increasing influence of economic globalisation, civil society has increasingly turned to the private sector to address critical needs including disease prevention, provision of potable water supplies and educational opportunities. Such demands seek to fill a vacuum arising from government inaction and/or ineffectiveness in both developed and developing nations. They also reflect the inevitable claims upon private sector generated wealth at a time when some 40 of the world's largest economic entities are companies, not countries;

q Manage social responsibility challenges as part of corporate governance. Existing governance legitimately focuses on such issues as leadership of the company, compensation, business strategy, risks to the business, regulatory compliance and performance outcomes. As social responsibility issues become more important, they need to be integrated into the governance process, including direct participation by the CEO and the leadership team, the board of directors and line managers. Given the increasing frequency of challenges to a company's brand and business strategy, managing corporate responsibility is not a task for delegation to technical, legal or public relations specialists, and decision-making should not be compartmentalised within the company.

q Look upon corporate social responsibility as a strategic challenge and not as a series of high profile initiatives. Companies directly confronted over the environmental, political and social impacts of their activities have generally responded by adopting actions to relieve pressure points affecting specific parts of their business. As examples, companies have implemented initiatives to address concerns over wage rates and working conditions in their supply chains, invested in community improvement programmes near their operating sites and reformulated individual products when confronted by specific health risk concerns. Such actions may be individually justifiable but, taken together, they are largely reactive in nature and are unlikely to enable a company's leaders to shape their external business environment. Before jumping into the ‘initiative lifeboat,' a strategic assessment of social responsibility issues and their relationship to the company's value proposition should first be conducted to identify and manage the major risks and opportunities for continued business success;

q Measure society's expectations as part of the business process. Companies have developed sophisticated methods to assess the needs of customers, financial analysts, investment banks and regulatory agencies. This approach should be followed to enable business leaders to understand the views of social responsibility proponents, thus expanding options for generating business value;

q Define success for the company. Companies have demonstrated great skill in evaluating risk/return uncertainties across their business portfolios over many decades. A key enabler is the ability to leverage corporate attributes (eg business strategy, products or even culture) not easily replicated by competitors in the midst of market, political and technological changes. Success in managing social responsibility issues follows a similar logic and is designed to protect the corporate brand and reputation, enhance market access and generate opportunities for product improvements and innovative partnerships across business activities.

For many companies, corporate social responsibility is not regarded as a welcome choice, but it is becoming increasing necessary for business planning and success. For company self interest and social well-being, CEOs should become more directly engaged in deciding how wealth generating opportunities that benefit society can be integrated with company decision-making.

Terry F Yosie is a former senior executive of the US Environmental
Protection Agency and the US chemical and petroleum industries

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