Best Practices of Leading Corporate Citizens

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Vision, Values, Value-Added:
Integrating Corporate Citizenship into Operating Practices*
Sandra Waddock
Boston College
Carroll School of Management
Chestnut Hill, MA 02467
617-552-0477
F: 617-552-0433
[email protected]
*
This paper synthesizes and further develops the corporate citizenship framework articulated throughout
my book Leading Corporate Citizens: Vision, Values, Value-Added (McGraw-Hill, 2002).
1
Vision, Values, Value-Added:
Integrating Corporate Citizenship into Operating Practices
Abstract
Leading corporate citizenship today demands an integrated—or integral—
perspective on the way that a company articulates its purposes and how it operates dayto-day with respect to its numerous stakeholders. Arguably it will become increasingly
difficult for companies to ignore the responsibilities that are inherent to the impacts that
they have on societies and stakeholders as demands for transparency and accountability
for corporate impacts continue to mount. This paper will present evidence that a
combination of vision and values linked to operating practices that respect stakeholders
contribute to value-added—and possibly to competitive advantage—for companies.
Values that underpin leading corporate citizenship include respect for stakeholders,
mindfulness about corporate impacts, integrity in all senses of the word, which help to
create trust. Leading corporate citizenship also demands working with (not managing)
stakeholders through on-going processes of engagement, dialogue, and reciprocity, and a
willingness to be accountable for corporate activities, while providing transparency for
external stakeholders. Further, I will argue that although most companies are still far
from achieving this integrated approach to corporate it is becoming increasingly clear
what stakeholder-related practices companies need to have in place to become leading
corporate citizens. Thus, the paper will present a prescriptive model, based on current
best practice, of the ways that leading corporate citizens can potentially conceive of their
citizenship practices.
2
Vision, Values, Value-Added:
Integrating Corporate Citizenship into Operating Practices
Leading corporate citizenship today demands an integrated—or integral—
perspective on the way that a company articulates its purposes and how it operates dayto-day with respect to its numerous stakeholders. Arguably it will become increasingly
difficult for companies to ignore the responsibilities that are inherent to the impacts that
they have on societies and stakeholders as demands for transparency and accountability
for corporate impacts continue to mount. This paper will present evidence that a
combination of vision and values linked to operating practices that respect stakeholders
contribute to value-added—and possibly to competitive advantage—for companies.
Values that underpin leading corporate citizenship include respect for stakeholders,
mindfulness about corporate impacts, integrity in all senses of the word, which help to
create trust. Leading corporate citizenship also demands working with (not managing)
stakeholders through on-going processes of engagement, dialogue, and reciprocity, and a
willingness to be accountable for corporate activities, while providing transparency for
external stakeholders. Further, I will argue that although most companies are still far
from achieving this integrated approach to corporate it is becoming increasingly clear
what stakeholder-related practices companies need to have in place to become leading
corporate citizens. Thus, the paper will present a prescriptive model, based on current
best practice, of the ways that leading corporate citizens can potentially conceive of their
citizenship practices.
The Vision-Values Connection
The first step in leading corporate citizens is to develop a vision for the firm that
is inspirational, meaningful, and show how the activities of the enterprise contribute to a
better world or somehow creates a meaningful raison d’être for the organization. The
term vision has connotations that provide helpful insights in understanding the linkages
that are needed to create meaningful stakeholder relationships and good stakeholder
practices, the essence of corporate citizenship, within companies today. Vision means to
see with the eye, but it means more than that: a vision is also a power to perceive what is
not actually present, a form of imaging of possibilities and potentials, of anticipating
what could be. Used constructively and positively, visions provide a "picture," quite
literally an image that taps into the imagination and allows it to soar.
In his work on the learning organization, The Fifth Discipline, Peter Senge defines
vision as a picture of the future that you seek to create.1 To the extent that a vision is a
"picture," it helps us to "see" where we want to go and make choices about how to get
there. Inspirational visions, like the best rulers, are the ones that create meanings that are
generative in that that they draw people in (as in a breath being inspired) and help them
see, as Lao Tsu says, how they can do it (whatever “it” is) for themselves.
3
XVII
The best of all rulers is but a shadowy presence to his subjects.
Next comes the ruler they love and praise;
Next comes one they fear;
Next comes one with whom they take liberties.
When there is not enough faith, there is lack of good faith.
Hesitant, he does not utter words lightly.
When his task is accomplished and his work done
The people all, say, ‘It happened to us naturally.’2
Visions, of course, are not always positive in reality. With respect to leading
corporate citizens, however, the vision does need be positive and also be underpinned by
constructive values. Constructive values, as I define them, aim toward enhancing human
spirit and building a better world, in contrast to being destructive of the human spirit and
the ecology that sustains us. Vision in this sense, inspires. Such ‘inspiriting’ vision is a
critical source of the meaning, community, and capacity to contribute that is arguably
what people are seeking today when they seek spirituality at work and which I believe is
fundamental to human civilization. As the work of Collins and Porras3 indicates,
inspirational vision can be found in altogether too few places. Vision is different from
the goal of most corporations to “maximize shareholder wealth.” While producing
profits is important, they need to be viewed as a necessary—but not sufficient—aspect of
corporate visioning. Indeed, in some respects, as Collins & Porras found out in their
study of visionary companies, profits need to be viewed not as an end in themselves, but
as a by-product of doing well by primary stakeholders, including customers, employees,
supplier/allies, and as well as owners.4
Vision can be created by a visionary individual; sometimes it can emerge from
groups working together collaboratively. Inherent in the concept of vision is a notion of
higher purpose. In the past visionaries were considered to be impractical dreamers out of
touch with reality. Today, however, it is well recognized that successful organizations
need visionaries who can help them dream about higher purposes that inspire action,
commitment, and connection especially among critical stakeholders like employees. In
this positive sense, visionaries are first of all those who see what is clearly and
unrelentingly. They are realists, willing to grapple with the hard facts, figures, and
relationships that constitute organizational life. But secondarily, and equally importantly,
visionaries are those who are able to imagine a possible or hoped-for future—and to
represent that future to others in ways that capture their imaginations and help guide them
toward the realization of the vision. As well, visionaries show others how their
participation can help achieve the vision.5
Vision Inspires Meaning, Shows Contributions
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For corporate citizens, clearly articulated visions serve as guides to action and
decisions; they articulate the fundamental purposes of the enterprise in ways that
stakeholders can identify with. They delineate what actions and decisions make sense in
light of what is needed to achieve the vision. Further, visions help determine what kinds
of actions should not be taken, either because those actions are unnecessary or will deter
achievement of the vision or because they are inconsistent with the vision or its
associated values. When they are positive and constructive, visions guide organizational
stakeholders in a common enterprise toward the achievement of shared goals and toward
productive ways of interacting with each other. Visions, when "enacted" through
organizational norms and cultures provide, both figuratively and literally, a picture of
where we are going and how we are going to get there together.
Vision thus inspires in multiple ways, not least of which is getting people to
commit to doing something together that they believe makes a (positive) difference in the
world. It is this sense of making a difference that compels and creates meaningfulness in
doing whatever the work of the organization is. Vision creates aspirations by articulating
or imaging how the world can be different through the actions of the focal enterprise; it
enhances the pursuit of a larger purpose, something outside of and bigger than oneself, or
one's own purposes. Constructive and positive visions exhilarate, encourage, and connect
people in their pursuit of common purpose. Visions create a sense of "we" rather than us
vs. them in an organization, as well as a sense of belonging to a community doing
important work together. Shared visions can also foster creative risk-taking and
experimentation, which are necessary for innovation and entrepreneurship even within
large corporations. And vision helps overcome the notorious short-term orientation of
some managers by focusing their attention on the long-term achievement of that vision.6
By creating visions that inspire commitment, loyalty, meaning, and a sense of
community among primary stakeholders and implementing practices that sustain positive
interaction with key stakeholders, companies can achieve high levels of performance over
time. When the vision is clear, then stakeholders, particularly the primary stakeholders
who constitute the firm7 (i.e., owners, employees, customers, and supplier/allies), know
how their participation matters—and what impact they can have.
Values Ground Vision in Operating Practices
There is more. Vision, as briefly noted, needs to be supplemented by constructive
values, values that guide actions as well as decisions in fruitful and productive ways.
Collins and Porras8 term this combination of vision and values core ideology. Core
ideology consists of the vision or company purpose and a set of core values that sustain
so-called visionary companies even through bad times. To enable productive
contributions, inspiration, and generation of meaning, these values need to be what
leadership scholar James McGregor Burns terms “end values.” End values describe
desirable "end states," collective goals, or explicit purposes, establishing standards for
making choices among a set of alternatives. Thus end values combine two meanings
important to understanding leading corporate citizenship: collective goals and the
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standards by which those goals will be met.9 Important to this definition is the term
collective: generating wealth for one group of stakeholders, the shareholder, in and of
itself is hardly likely to inspire the type of long-term and sustained commitment
necessary from another important stakeholder group, employees, if employees cannot see
how they are contributing somehow to a better world. Nor are customers likely to
continue to provide their franchise if their good will deteriorates from shoddy or illconceived products and services, if communities are mistreated, or power is otherwise
abused.
Burns describes another type of value he calls modal values, which define modes
of conduct or, in the corporate context we are describing, the values underpinnings of
managerial practices. Modes are the means by which human enterprise should be
conducted, although they are sometimes goals in themselves, and include such things as
honor, courage, civility, honesty, and fairness. These underlying values possibly
represent the kinds of hypernorms at the macrosocial level described by Donaldson &
Dunfee that keep the system itself working effectively.10 Without such modal values or
hypernorms in place, the system itself cannot work, particularly in the long term (for
there can always be short-term gains from various forms of prisoner’s dilemmas or free
ridership). Some modal values are intrinsic in that they are ends in themselves (i.e.,
worth achieving simply because they are worth something), thus serving as both ends and
means. Others are extrinsic or instrumental, in that they help us achieve a goal or end
value.11
Visions are necessarily implemented through values that become realized—or
enacted—in operating practices that make those values “live” in day-to-day initiatives
that companies undertake to get the work done. Thus, vision alone, even highly positive
and engaging vision, is insufficient. As part of leading corporate citizenship, vision
consists of end values on which the collectivity of stakeholders associated with the firm
agrees. Vision is supported by modal values that delineate not only “What we stand for,”
or the enterprise strategy question,12 but also “how we do things here,” or operating
practices. That is, values are demonstrated through a company’s operating practices
through the relationships developed with employees, customers, community, owners,
natural environment well, and local authorities, that is with stakeholders. In other words,
visions and associated values are implemented through processes, policies, and
procedure—operating practices--that affect and are affected by the network of
stakeholders in which the organization is inextricably embedded, the fundamental
definition of stakeholder relationships.13
The relationships that a company has with its stakeholders are imbued with
values. Visionary companies, it seems, successfully made the link between rhetoric and
reality, closing the gap between what they say they are going to do and what they actually
do in day-to-day practice.14 They build environments that people can feel part of—and
that create a sense of mission and purpose and bring operating practices based on a
foundation of what I have elsewhere termed integrity and mindfulness into reality (see
below for a brief discussion).15 They build environments where everyone can contribute
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and, in his or her own way, play a leadership role, rather than having all of the vision,
values, and leadership centered in the chief executive.16
The end values embedded in core ideology are typically articulated in a mission
or vision statement. The "living up to" is done through the development and
implementation of operating policies, procedures, and programs, i.e., the practices that
define "the way business is done here" and that create the context for the relationships
with stakeholders that companies inevitably develop. Implementing values through
managerial, employee, and other stakeholder-related practices, such as customer
relations, supplier relations, or governmental relations, is on-going in that new
developments and conflicts will inevitably arise as the external context changes, as new
decisions are made internally, as new competitors arise, and as technology continues to
advance.
Integrity and Mindfulness: Foundations of Leading Corporate Citizenship
Elsewhere I have argued that there are two foundations of leading corporate
citizenship: integrity (in all senses of the word) and mindfulness.17 Mindfulness means
to operate in the here and now, aware of the impacts of decisions, and with wisdom with
respect to the future consequences of those decisions.18 Being mindful in the sense that
we are using it here demands significant levels of awareness and the capacity to think
through decisions systemically.
Integrity has several relevant meanings: honesty and forthrightness, first of all.
In the context of corporate citizenship, integrity has implications for transparency of
action and accountability for impacts, suggesting openness on the part of the company to
stakeholders and a willingness to engage with them forthrightly. In this respect operating
with integrity means assuming responsibility for impacts—and being transparent to key
stakeholders for those impacts.
Integrity also means wholeness or completeness, rather than fragmentation, thus it
suggests that the parts of the enterprise function together toward common ends, rather
than going off in multiple directions simultaneously, held together by the glue of values.
It implies that such companies recognize that they are an integrated part of a larger
entity—the societies in which they operate—of which they are inherently and
inescapably a part, or what Wilber calls a holon (a whole/part). As a result, operating
with integrity means acknowledging that some impacts are not visible or measurable in a
strictly empirical sense; they can be emotional, aesthetic, appreciative, or meaningmaking and making efforts to account for those impacts as well as the more visible ones
(positive and negative).
Finally and importantly, integrity speaks to the issue of responsibility in
recognizing that responsibility is integral—inherent to—impacts. Responsibility cannot
be separated from action when all of these senses of integrity are combined.
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Integrated Corporate Citizenship: Stakeholder Practices
Let us summarize what we have developed to this point in this paper: Companies
that wish to become leading corporate citizens articulate a clear vision that shows how
their activities will contribute to the world, generates meaning for their stakeholders
(particularly employees), and provides important guidance to decision makers. They
underpin this vision with constructive values, and bring these values into their operating
practices, which implement respectful stakeholder relationships. This integrated
perspective suggests that responsibilities, far from being “social,” are integral to
corporate stakeholder-related practices: they cannot be separated. Further, the integrity
related to integration suggests that companies can enhance their performance by
implementing ‘best practice’ stakeholder relationships typically through boundaryspanning functions, while recognizing that responsibility inheres to action and impacts.
There is considerable emerging evidence about what constitutes best practice in a
range of stakeholder domains (as well as with respect to nature) such that we can
formulate some prescriptions for companies that seek to improve performance and
practice. This is not to say that current best practice is the ultimate or the ideal. Rather,
the point is that despite lack of widespread implementation of such practices, there is
significant evidence pointing to what the current state of best practices actually might be
within a number of important stakeholder domains. Knowledge of these practices and
their implementation can arguably enhance not only responsible corporate citizenship,
but also financial and other types of performance.
Interestingly, many of these best practices seem to be built on similar
foundational values, as Liedtka has pointed out in her review of numerous management
“fads” over the past two decades.19 Liedtka demonstrates that many recent corporate
initiatives to improve performance, such as strategic thinking, total quality management,
re-engineering, and the learning organization, are based on a convergent set of themes
that have similar underlying values. For example, all of these systems create a shared
sense of meaning, vision, and purpose that connects the individual to the organization, by
valuing community without subordinating the individual and viewing overall purposes as
flowing from individuals. Sound familiar?
These initiatives also develop a systems perspective that enable members to serve
other members and their eosystem partners; they tend to emphasize process rather than
hierarchy, believing that work itself has intrinsic value (valuing both ends and means, as
noted above). Further responsibility for action is localized around work processes, and
information is leveraged through truth telling (honesty, integrity), and transparency.
These systems also focus on both organizational and individual development, value
individuals as ends and emphasizing their own learning and growth; they encourage
dialogue, with concomitant values of freedom and responsibility to speak and listen,
gaining commitment to find higher ground through dialogue. Finally they foster capacity
to create commitment and ownership and take multiple perspectives simultaneously, by
focusing on engagement, urgency, promise keeping, and a willingness to understand the
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points of view of others. Many of these same perspectives are embedded in the ‘best
practices’ of leading corporate citizens discussed above and to be delineated below.
Current “Best” Stakeholder Practices Embody Vision and Values
Corporate citizenship, I have argued above, is the manifestation of the decisions
and impacts that a company has with respect to its stakeholders and the natural
environment, that is, with the relationships a company generates with its stakeholders
through its operating practices. Corporate citizenship involves not only the private work
of managing productive activity but also the public work of management20 that needed to
keep society and its manifold enterprises sound, healthy, and balanced, to act with respect
toward stakeholders, and to work toward ecologically sustainable development.
Thus, corporate citizenship is embedded in corporate practices, the operating
policies, processes and procedures used to implement corporate strategies, not an add-on
to economic or legal responsibilities. Such a view of corporate citizenship takes into
account the entire set of impacts that a company has on its key stakeholders through its
day-to-day operating practices, including not only quantitatively measurable impacts, but
also qualitative aspects. Integrated corporate citizens respect multiple stakeholders and
their associated ‘bottom lines,’ along at least the lines of the ‘triple bottom line’ of
economic, social, and ecological indicators. Accountability and transparency are built
into leading corporate citizens, so stakeholders can hold the company accountable for
their impacts—and their benefits.
Responsibility for developing citizenship practices in this systemic sense cannot
simply be shunted off to a community relations or public affairs department alone, though
these functions are certainly involved in fostering citizenship. By understanding that
responsibility is integrated into all of the organizational practices that impact stakeholders
and the ecological environment, corporations can discover the power of vision to create
meaning and purpose for the organization and its stakeholders, as well as the power of
treating others with respect and dignity. Such a stance not only balances power among
the three spheres of human activity (economic, political, and civil society, as well as with
the natural environment that underpins all) but also tends to bring more equity and power
balance into relationships within organizations as well. When the full resources of
individuals are tapped and they are treated as human beings, the tendency to treat people
as mere cogs in the great machine of business diminishes. Respect and dignity are
enhanced; trust and mutual engagement become possible as stakeholders and companies
recognize their mutuality of interests. Although in some respects this view represents a
‘myth’ about corporations as leading citizens, it is exactly such a perspective that I
believe needs to be brought to fruition to balance the wide array of interests inherent in
any society and integrate responsible practice into the lives of our companies. Details
will vary by company, by country, and with the times, of course. The foundations of
respect for others, integrity, and mindfulness, however, can result in accountability, and
transparency of action, along with a stance toward stakeholders of reciprocity rather than
dominance, that generates mutual engagement, dialogue, and trust.
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To cope with the complexity and dynamism associated with dealing with multiple
stakeholders and their associated bottom lines simultaneously, many companies have
established a range of internal functions that cross organizational boundaries, either
internally as with employee relations or, more frequently, externally. Boundary spanning
functions in general are responsible for developing, maintaining, and assuring the quality
of the company’s relationship with a particular stakeholder group. Typically, we think of
these boundary-spanning functions as externally and “socially” oriented toward critical
secondary stakeholders, as in public, relations, community relations, or public affairs,
which focus respectively on the media, the community, and government. Boundaryspanning functions are equally important, however, when focused on primary
stakeholders, such as owners, employees, customers, and suppliers, as will be discussed
below. What is common among the boundary-spanning functions is their emphasis on
developing and maintaining positive and respectful relationships with the relevant
stakeholder group.
Figure 1 illustrates a generic mapping of the critical primary and secondary
stakeholder relationships with their related boundary-spanning functions for a typical
firm.21 For example, owners or shareholders are represented in the figure by the
shareholder- or investor-relations function. Employees are represented by various
employee relations and human resource functions, designated in the figure by the generic
term employee relations. Customers are represented through marketing efforts, product
quality and service, and designated boundary spanning functions generically termed
customer relations. The fourth group of primary stakeholders for many modern
companies, which have outsourced many functions or which depends on knowledge and
expertise from outside suppliers is, of course, suppliers and allies. Supplier relations are
typically handled through strategic alliances, contracts, or even joint ventures.
Critical secondary stakeholder relationships are also designated in the figure for a
typical company. In the typical large corporation, the community stakeholder is handled
by the community relations function. Governmental relationships are managed by the
public affairs office, which may also include the firm’s lobbying activities and political
activity. The public affairs umbrella can also include such particular stakeholder
relationships as public relations, issues management, crisis management, and media
relations, and sometimes community relations.
Finally, many modern corporations have also established environmental
management programs and offices to cope with the need for sustainability and better
stewardship of natural resources, and to handle relationships with environmental activists.
Value-Added from Best Stakeholder Practices
This section focuses on the current state of knowledge about best practices within
specific primary stakeholder domains as well as making the link to value-added from
these best practices, with a brief foray into best practices in critical secondary stakeholder
domains. First, the link to primary stakeholders, including owners, employees,
10
customers, and supplier/allies will be made. Then we will very briefly explore some
current thinking about best practices within the specific critical secondary stakeholder
domains of community and government relations, as summarized in Table 1.
Owners
Owners make a financial investment in the firm and a major responsibility of the
firm is to provide a fair (but not necessarily maximized) return to owners in return for
that investment.22 Many companies establish investor relations departments to manage
their shareholder relationships. When they are particularly serious about treating owners
well, they exhibit characteristics of transparency and accountability, particularly with
respect to financial reporting and may also become transparent with respect to social and
environmental reporting by undertaking responsibility or social audits,23 such as The
Body Shop and Traidcraft have done. While profit is largely a by-product of performing
well with respect to other stakeholders,24 owners are obviously owed a decent return for
their investment and so a fundamental goal of a for-profit organization has to be
operating profitably.
Collins and Porras’ seminal work on visionary companies has clearly
demonstrated the important role of vision and values—or in their term core ideology—in
producing long-term economic success. Their 18 visionary companies outperformed the
18 comparison companies by nearly ten times over the course of their histories, showing
the power of guiding vision and values in producing results for owners. Thus, leading
and managing the company well, with vision and values, and allowing shareholders (and
others) to see inside the company’s practices appears to be the best way to assure that
owners are satisfied with a company’s results. Notably, excellent treatment of owners is
increasingly being recognized as consonant with excellent treatment of other
stakeholders, both in visionary and other companies.25
Employees
Employees provide their human capital—intellectual and physical—to the
company in return for wages, stability, and their loyalty. Arguably, most employees with
to see how their work contributes and share in the overall meaning and impact generated
by the firm as it implements its vision. A significant amount of research summarized by
Pfeffer and Veiga demonstrates the importance of treating employees well as a
contributory factor to corporate profitability. One study, for example, showed that a
company using high performance work practices generated more than $27,044 additional
sales and $18,000 additional market value, with a corresponding nearly $4000 increase in
profitability per employee.26 Similarly, another study demonstrated that improving the
human resource system in a company on standard deviation above average resulted in
increases of shareholder wealth of $41,000 per employee, or about 14% of the total
market value premium.
Successful employee practices, like those geared to other stakeholders, are built
on a foundation of mutual respect and integrity. The best employee practices, as
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summarized by Pfeffer and Veiga from a vast amount of research on employee
relationships,27 include providing employment security, selectively hiring to build an
employee base with a common set of values, and creating self-managed teams through
decentralization. These teams substitute a degree of peer-based control for hierarchical
control. Other practices commonly found in high performance work systems include
comparatively high compensation made contingent to performance of the organization,
coupled with extensive training and reduction of status differences. The final attribute of
employee practices in highly successful organizations is sharing information on issues
related to financial performance, strategy, and how the organization’s success is
measured. Notably, this transparency is similar to that needed to assure owners about
economic performance, as noted above.
Further, Dessler suggests that earning employees’ commitment can be
advantageous to corporate success. Commitment is gained through many of the same
practices uncovered by Pfeffer and Veiga and discussed above, and additionally by
generating a system considered to be fair by employees, creating community through
common purposes, and then distributing rewards equitably, while celebrating
achievement and growth through a range of means.28 Employee loyalty is particularly
important in our era when human, intellectual, and knowledge capital are increasingly
becoming sources of competitive advantage,29 in contrast to physical labor, which was an
earlier source of competitive advantage.
Customers
Customers give their business franchise—their money and their trust in the
efficacy of the products and services purchased—to companies with whom they choose
to do business. Like employee relationships, the best customer relationships are built on
trust and mutual engagement, with a give and take related to the quality of what is
purchased and the extent purchases meet real needs. Leading corporate citizens attempt
to build sustained relationships with customers so that they will continue to be customers
in what is known as relationship marketing (which operates alongside the traditional
market mix of product, price, place, and promotion), which attempts to build customer
trust and loyalty for the long term.30
The best customer relationships, like other aspects of corporate citizenship, are
built on trust, integrity, and mutuality of the relationship, that is through dialogue and
engagement rather than a one-way set of communications. Customers develop loyalty to
a company when the products and services they purchase satisfy real needs, are delivered
in timely fashion, exhibit high quality, safety, and continual improvements. Continual
quality improvement is, for many companies today, a baseline performance measure for
the products and services they offer.31 Further, customer service is important, as
customers generally prefer working with companies with which they can develop a longterm relationship, where employees are accessible when problems or concerns arise, have
a positive attitude, and are credible enough to develop their trust.32
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Once again, there is significant empirical evidence to suggest that when customer
relationships are positive, financial performance ensues. Not only do good customer
relationships result in improved corporate reputation, which is increasingly
acknowledged as a source of competitive advantage,33 but customers are increasingly
demanding that companies behave responsibly to assure their continuing franchise, as is
consistently found in surveys by the market research firm Cone/Roper. One study
highlights the importance of sustained customer loyalty to the bottom line, indicating that
while happy customers tell six others about their experience, unhappy customers tell 22,
with the potential for serious losses of business over time.34
Supplier/Allies
Akin to the customer relationship in many instances is the supplier/ally
relationship in part because suppliers and allies can be in a customer relationship. The
blurring of boundaries between companies that collaborate in order to compete35 and that
establish successful long-term customer-supplier alliances necessitates paying attention
not only to traditional aspects of product/service quality and the relationships that sustain
them, but also the practices of companies with whom a corporation chooses to ally.
Supplier/allies can make significant infrastructure investments to accommodate the
company’s needs, forming a situation of mutual dependency that creates a need for
integrity in operating practices on both sides, a degree of transparency, as well as a
measure of mutual accountability. Even though the larger (purchasing) ally may be more
powerful—or perhaps because of this imbalance of power—mutual respect and
reciprocity form a basis for long-term successful collaboration.
Many companies have found out to their distress that suppliers that do not live up
to the company’s standards, including their vision and values, their codes of conduct,
and, in particular, their human resource policies, can cause great reputational—and
customer—difficulties. Supplier/ally relationships create interdependence, mutuality, and
a natural blurring of boundaries that can make it hard for outsiders to see where one
company’s practices end and another company’s begin. These links make it imperative
to pay attention to working and labor conditions in the suppliers’ facilities lest the
company get caught off guard by poor practices that might have been avoided. Although
it is not necessarily easy to monitor conditions in supplier firms, increasing demands by
labor and human rights activists provide a sound business reason to avoid doing business
with suppliers that fail to live up to the company’s own standards.36
Critical Secondary Stakeholder Relationships
Two additional groups are what we can call critical stakeholders for leading
corporate citizens: governments where the company locates facilities and, in particular,
where it is headquartered, and local communities (see Table 2). Both of these
stakeholder groups can make significant investments in a company’s activities by
providing tax breaks, local infrastructure, and an educated workforce that helps the
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company compete. Because these are secondary rather than primary stakeholders, their
contributions and relationship with the firm may not impact the bottom line as directly as
do the relationships a company develops with its primary stakeholders, without which it
cannot exist. But communities and governments can benefit from or be hurt by corporate
activities, particularly if there is an unbalanced relationship based solely on economic
resources or power.
Public Affairs/Government Relations. Because the laws, rules, and regulations
established by governments to protect the societies governed affect companies, many
large companies have public affairs or other external relations functions explicitly geared
to work with public policy makers. Good public affairs offices help public policy makers
understand the interests and needs of the company and, conversely, help companies
understand, anticipate, manage, and, ultimately, cope with public policy issued by
governmental bodies.37
Like the related issues management function,38 public affairs offices frequently
attempt to frame issues in ways that are favorable to the corporation. Yet corporations
that really desire to be leading corporate citizens do not abuse the power vested in them
by virtue of the extensive resources they control, thus they keep public policy makers
informed about the company’s perspectives without exercising undue influence. Further,
through the public affairs and issue management functions, companies constantly monitor
their external environments to determine what issues will impact them and how, so that
they are prepared for constructive actions when necessary.39
Community Relations. Communities, like governments, represent stakeholders
with significant interest in the way a company operates. Because communities frequently
also make investments in infrastructure, rules, and regulations that benefit companies,
they expect to be treated as a “neighbor of choice,” that is with dignity, respect, and
reciprocity for what is given.40 Once again this reciprocity implies the development of a
trusting relationship base don mutual respect and on-going dialogue with communities
and their representatives, rather than a one-sided relationship in which the company
retains all the “voice” and all the power.
Community relations encompasses multiple domains, including research on
corporate financial performance and corporate responsibility, social investment,
consumer behavior, and human resources, along with innovation in market and product
development. Reviewing this literature, the Center for Corporate Citizenship at Boston
College comes to the conclusion that corporate community involvement generally has a
positive impact on the traditional financial bottom line. Although few studies have
directly measured the impact of corporate community involvement on financial
performance, there is significant evidence to suggest that it is increasingly being used as a
helpful tool for new market and product development. Good community relationships
and positive corporate responsibility can also provide a reason for consumers to be loyal
to one company in preference to another with whom they have less solid relationships.41
14
Environmental Management/Sustainability
In concluding the review of the types of relationships that sustain successful
corporate citizens over time, we cannot ignore the very foundation of human civilization:
the natural environment. While nature is not a stakeholder per se, it does constitute the
sine qua non of human existence: nature would go on quite nicely without human beings,
however, human beings cannot survive without a relatively narrow range of specific
conditions in nature. Thus, even though there is mounting evidence that operating in
environmental responsible ways is also profitable, environmental stewardship is an
increasing business—and human—imperative because it supports life as we know it even
were it unprofitable.
Recent research, for example, suggests that environmental management systems
can have significant positive effects on the bottom line, as well as on investors’
willingness to invest in a firm.42 Other studies suggest that “it pays to be green,” that is,
that environmental performance and economic performance are positively related.43
Increasing use of environmental audits and publication of environmental reports
attest to the growing importance in corporate leaders’ eyes of the natural environment.
Best practices today focus on what ecologist Stuart Hart calls product stewardship, which
attempts to minimize pollution related to manufacturing and all other sources of
environmental impacts, and are moving toward what Hart terms clean technology. Clean
technology recognizes that many of today’s technologies are not sustainable long-term
and shifts toward using many fewer resources.44
A comprehensive environmental management system emphasizes waste
minimization and prevention, preventing rather than controlling pollution by reducing,
minimizing, and eliminating wastes at their source. It also uses demand-side
management to understand consumer needs and preferences to avoid waste and produce
and sell only what will actually be used efficiently by customers. Further, companies
using this approach also design for the environment by producing parts that can be
disassembled, upgraded, and recycled. They focus on product stewardship, taking care in
design, manufacturing, use, and disposal to reduce environmental risks and problems, and
they use full-cost accounting systems to track—and be accountable—all associated
costs.45
A Model for Leading Corporate Citizens
There is a conceptual difference between corporate ‘social’ responsibility, which
allows companies some ‘wiggle room’ or discretion with respect to the stakeholderrelated activities they undertake, and corporate responsibility, which is integral to
corporate practice with respect to stakeholders and cannot be separated from it. We are
interested, that is, in the major impacts companies have on all of their stakeholders—and
in pushing toward responsible practice within all of these domains, not just in whether
companies have philanthropy or volunteer programs. Corporate activities inevitably
15
affect employees, customers, suppliers, owners, and communities—as well as
governments and the natural environment. Prescriptively we suggest that there are, in
fact, better and worse operating practices—and what they are is not necessarily
mysterious, even if they are not always fully implemented. Further, we argued above that
leading corporate citizenship is not only responsible; the evidence we have briefly
covered above suggests that it is also good business.
Thus, we focus on the link between vision, values, and practices—and assess
whether outcomes or more responsible, values-driven practices have the potential to add
value. I have argued that while not all companies are currently implementing positive
stakeholder-related practices, we can access an emerging recognition of what types of
practices make the most sense, as well as what common values they share at both the
overall corporate level and the functional level. Figure 2 summarizes what we have been
about in this paper: creating a prescriptive model of leading corporate citizenship.
The figure indicates that leading corporate citizenship is built on a foundation of
core values, which can be operationalized differently in different companies, but have a
common core of respect for stakeholders, mindfulness about the impacts of corporate
actions and decisions, and integrity as both honesty and wholeness. Out of these values
and the desire to do something well for customers comes a corporate vision, which is
operationalized through stakeholder-related practices. Companies that operate from a
place of integrity, mindfulness, and respect for others, however they express their
individual corporate values, also treat those others as ends, rather than means. This
awareness of others as ends leads to certain types of practices, including willingness to
accept the responsibility that is integral within operations, and a corresponding
transparency and accountability. It also leads to a willingness to work collaboratively in
a competitive environment, particularly with primary stakeholders, through processes and
values that include development of trust, engagement, dialogue, and reciprocity (as
opposed to one-sided power mongering).
When the foundational values are in place, companies can build on them to
develop positive operating practices with respect to their primary and secondary
stakeholders. These values, if truly lived, allow for mutual engagement, reciprocity
rather than one-sidedness, and dialogue (rather than one-sided communication) that helps
to establish a system embedded with trust. Leading corporate citizens can generate this
trust through its stakeholder relationships because they have also established transparency
with respect to their major practices and built in accountability for their positive and
negative impacts.
16
Table 1. Best Practices in Primary Stakeholder Relationships for Leading Corporate Citizens
Primary
Relevant Boundary-Spanning Best Practices of Leading Corporate Citizens
Stakeholder/
Functions
Transparency and accountability with respect to
Bottom Line
Owners/
Investor Relations
fiduciary responsibilities; achieve balance and a
Financial
fair return for shareholders.
Employees/
Intellectual and
Human Capital,
Commitment and
Loyalty
Employee Relations
Human Resource Management
Training and Development
Employment security
Selective hiring
Self-managed teams and decentralization
Comparatively high compensation
Extensive training
Reduction of status differences
Sharing information
Create meaningful, inspirational workplaces
supported by vision, values, and implementation
Value employees as ends, not means to an end
Develop trust, commitment, and loyalty
Customers/
Business franchise
Trust
Customer Relations
Relational Marketing
Marketing
Develop loyal customers, build trust through
quality products and services that meet real
customer needs and are delivered on time as
advertised; interact with customers in an ongoing way
Commit to product quality, safety, continual
process and product improvements, accessibility,
positive attitude, and credibility to develop trust
and communication with customers
Build trust and commitment by offering superior
resources, opportunities, and benefits,
maintaining high integrity and standards,
communicating important information, and
avoiding opportunism.
Suppliers, Allies,
and Partners/
Infrastructure,
Relationship
Joint Ventures
Supplier and Outsourcing
Contracts and Partnerships,
Strategic Alliances
Monitor suppliers, allies, and partners to assure
that quality, employment, safety, and codes of
conduct standards are met, and to build a lasting
and trusting relationship with allies. Assure that
the company’s vision is communicated to and
understood by allies and that they are willing to
meet high standards and expectations. Build on
a basis of trust and mutual commitment,
including offering superior resources, high
integrity, open communication, and avoidance of
opportunistic behavior.
17
Table 2. Best Practices for Secondary Stakeholder Relationships for Leading Corporate Citizens
Secondary
Stakeholder
Relevant Boundary-Spanning
Functions
Best Practices of Leading Corporate Citizens
Government/
Public Good,
Common Good
Public Affairs
Help public policy makers understand,
anticipate, and cope with issues that arise from
business practices in a way that serves the public
interest/common good. Keep public policy
makes informed about the company’s
perspectives, interests, and needs without
exercising undue power or influence.
Issues Management
Constantly scan and monitor the external
environment for emerging issues. Assess history
and development of issues, forecast possible
futures using issue life cycle analysis, use
forecasting techniques to develop scenarios, and
determine possible impacts on company, then
take necessary steps to contend with these
implications.
Community Relations
Stakeholder Relations
Corporate Citizenship
Become a neighbor of choice by exerting
leadership as a corporate citizenship, managing
community-related issues effectively, building
relationships with community members,
developing a community relations strategy and
relevant infrastructure that is assessed and
measured regularly.
Environmental Management
Systems/Sustainability
Initiatives
Environmental audits, use of life cycle and fullcost accounting systems, emphasis on
sustainable development. Waste minimization
and prevention, demand-side management,
design for environment, product stewardship,
and full-cost accounting.
Community(ies)/
Infrastructure
Foundation
Environment
18
Figure 1.
Boundary Spanning Functions in Leading Corporate Citizens
Public Affairs
Shareholder
Relations
Government
Business
Customer
Relations
(Product,
Quality)
Suppliers;
Strategic
Alliances
Environmental
Management
Employee and
Union
Relations/
Policies
Spirituality in
the Workplace
Initiatives
Inter-sector
Collaboration and
Partnerships
Public Relations
Media Relations
Issues Management
Civil Society
Ecological Environment
Focal firm
19
Figure 2. A Model of Leading Corporate Citizenship
Stakeholder-related Operating Practices
In Boundary-Spanning Functions
Trust
Engagement
Dialogue
Reciprocity
Vision
Foundation Values:
Integrity, Mindfulness, Respect
20
Transparency
Accountability
1
The seminal book is Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning
Organization. New York: Doubleday, 1991. Further definition and multiple exercises to help develop
vision can be found in Peter M. Senge, Charlotte Roberts, Richard B. Ross, Bryan J. Smith, and Art Kleiner
(1994). The Fifth Discipline Fieldbook: Strategies and Tools for Building a Learning Organization. New
York: Currency Doubleday.
2
Lao Tzu, Tao Te Ching. Translated by D. C. Lau. Middlesex, England: Penguin Books, 1963.
3
Collins and Porras, 1995, cited above.
4
See Samuel B. Graves and Sandra A. Waddock, “Beyond ‘Built to Last: An Evaluation of Stakeholder
Relationships in ‘Built-to-Last’ Companies,” Business and Society Review, 2000, 105 (4): 393418.
5
Senge, 1991, cited, above, p. 207; see also R. Edward Freeman and Daniel R. Gilbert, Jr. (1988).
Corporate Strategy and the Search for Ethics. Englewood Cliffs, NJ: Prentice Hall, 1988, for discussion
of personal projects; and Sandra A. Waddock, "Linking Community and Spirit: A Commentary and Some
Propositions," Journal of Organizational Change Management, special issue on Spirituality and Work,
forthcoming.
6
These outcomes of vision are derived from Senge, 1991, cited above, pp. 207-211.
7
See Max B.E. Clarkson, A Stakeholder Framework for Analyzing and Evaluating Corporate Social
Performance. Academy of Management Review. 1995, 20: 1, 92-117.
8
See James C. Collins and Jerry I. Porras, Built to Last: Successful Habits of Visionary Companies, New
York: HarperBusiness, 1994. See also "Building Your Company's Vision," Harvard Business Review,
September-October 1996, 65-77 by the same authors.
99
James McGregor Burns discussed end and modal values extensively, as the key to transformational
leadership in his book Leadership, New York: Harper Torchbooks, 1978, pp. 74-76.
10
Thomas Donaldson and Thomas W. Dunfee. (1999). Ties that Bind: A Social Contracts Approach to
Business Ethics. Boston: Harvard Business School Press.
11
See Burns, cited above, p. 75.
12
R. Edward Freeman and Daniel R. Gilbert, Jr., Corporate Strategy and the Search for Ethics.
Englewood Cliffs, NJ: Prentice-Hall, 1988.
13
The definition of a stakeholder given by R. Edward Freeman, Strategic Management: A Stakeholder
Approach. New York: Basic Books, 1984 is any individual or group who can affect or is affected by the
corporation.
14
See Collins & Porras, cited above.
15
Sandra Waddock, Integrity and Mindfulness: Foundations of Corporate Citizenship. Journal of
Corporate Citizenship, Spring 2001, 1 (1): 25-37.
16
For this point I thank my colleague Joe Raelin, for his persistence in pointing out to our Leadership for
Change program faculty that effective leadership is distributed throughout the organization.
17
Sandra Waddock, Integrity and Mindfulness: Foundations of Corporate Citizenship. Journal of
Corporate Citizenship, Spring 2001, 1 (1): 25-37. See also Leading Corporate Citizens: Vision, Values,
Value-Added. New York: McGraw-Hill, 2002.
18
Russell Ackoff (1999) provides this definition of wisdom.
19
Jeanne M. Liedtka, “Constructing an Ethic for Business Practice: Competing Effectively and Doing
Good,” Business & Society, September 1998, 37 (3): 254-280.
20
See Sandra Waddock and Jams E. Post Transforming Management Education: The Role of Service
Learning. In Service Learning in the Disciplines: Management, edited by Paul C. Godfrey and Edward T.
Grasso. Washington, DC: AAHE Monograph, 2000, pp. 43-54.
21
For the distinction between primary and secondary stakeholders, see Max B. E. Clarkson, “A Stakeholder
Framework for Analyzing and Evaluating Corporate Social Performance,” Academy of Management
Review, 1995, 20: 1, 92-117; and Sandra Waddock, Leading Corporate Citizens, cited above.
22
See, e.g., Richard Marens and Andrew Wicks, “Getting Real: Stakeholder Theory, Managerial Practice,
and the General Irrelevance of Fiduciary Duties Owed to Shareholders,” Business Ethics Quarterly, April
1999, 9 (2): 273-293.
23
See Sandra Waddock and Neil Smith, “Corporate Responsibility Audits: Doing Well by Doing Good.”
Sloan Management Review, Winter 2000, 41 (2): 75-8
24
See Marens and Wicks, cited above, and also Collins and Porras, cited above.
21
See Collins and Porras, cited above. See also Waddock, Sandra A. and Samuel B. Graves, “The
corporate social performance-financial performance link,” Strategic Management Journal, 1997, 18 (4):
303-319 and ). Quality of Management and Quality of Stakeholder Relations: Are They Synonymous?
Business and Society, 36 (3), September 1997, 250-279; and also Graves and Waddock, 2000, cited above.
26
B. Gates, “Compete, Don’t Delete,” in The Economist, June 13, 1998, 19-21. Cited in Jeffrey Pfeffer and
John Veiga, “Putting People First for Organizational Success,” Academy of Management Executive, May
1999, 13 (2): 37-48.
27
Pfeffer and Veiga, cited above. See also Jeffrey Pfeffer, Competitive Advantage Through People:
Unleashing the Power of the Workforce. Boston: Harvard Business School Press, 1995.
28
Gary Dessler, “How to Earn Your Employees’ Commitment,” Academy of Management Ex4ecutive, May
1999, 13 (2): 58-67.
29
Janine Nahapiet and Sumantra Ghoshal, “Social Capital, Intellectual Capital, and the Organizational
Advantage,” Academy of Management Review, April 1998, 23 (2): 242-266.
30
See, e.g., Robert M. Morgan and Shelby D. Hunt, “The Commitment-Trust Theory of Relationship
Marketing, Journal of Marketing. July 1994, 58 *3): 20-38; Christian Gronroos, “From Marketing Mix to
relationship Marketing: Towards a Paradigm Shift in Marketing,” Management Decision, 1994, 32 (2): 420. See also Roland T. Rust, Valerie A. Zeithaml, and Katherine N. Lemon, Driving Customer Equity:
How Customer Lifetime Value is Reshaping Corporate Strategy. New York: Free Press, 1999.
31
Armand V. Feigenbaum, “Changing Concepts and Management of Quality Worldwide,” Quality
Progress, December 1997, 30 (12): 45-48.
32
Morgan and Hunt, cited above.
33
See, e.g., Charles J. Fombrun, Reputation: Realizing Value from the Corporate Image. Boston: Harvard
Business School Press, 1996.
34
Gronroos, cited above.
35
Adam M. Brandenberger, Barry J. Nalebuff, and Ada Brandenberger. Co-opetition : 1. A Revolutionary
Mindset Redefines Competition and ; 2. The Game Theory Strategy That's Changing the Game of Business.
New York: Doubleday, 1997.
36
See, e.g., Pamela Varley, editor, The Sweatshop Quandary: Corporate Responsibility on the Global
Frontier. Washington, DC: Investor Responsibility Research Center, 1998. See also websites activists
organizations like Sweatshop Watch (GET WEBSITE) and the International Labour Organization
(www.ilo.org), which constantly monitor conditions in supplier factories, generating significant negative
publicity for companies when they find problems.
37
James E. Post, Edwin A. Murray, Jr., Robert B. Dickie, and John F. Mahon, “The Public Affairs
Function in American Corporations: Development and Relations with Corporate Planning,:” Long Range
Planning, April 1982, 15 (2): 12-21. See also James E. Post and Jennifer J. Griffin, “The State of
Corporate Public Affairs: Final Report, 1996 Survey. Boston and Washington: Boston University School
of Management and Foundation for Public Affairs, 1996; and Alfred A. Marcus and Allen M. Kaufman,
“The Continued Expansion of the Corporate Public-Affairs Function,” Business Horizons, March/April,
1988, 31 (2): 58-62.
38
Douglas Nigh, and Philip L. Cochran, “Issues Management and the Multinational Enterprise,”
Management International Review, 1994, 34 (special issue): 51-59.
39
See Post et al., and Nigh and Cochran, cited above.
40
Edmund M. Burke, Corporate Community Relations: The Principle of the Neighbor of Choice.
Greenwich, CT: Praeger, 1999.
41
Steven A. Rochlin and Brenda Christoffer, Making the Business Case: Determining the Value of
Corporate Community Involvement. Chestnut Hill, MA: Boston College Center for Corporate community
Relations, 2000.
42
Stanley J. Feldman, Peter A. Soyka, and Paul. G. Ameer, “Does Improving a Firm’s Environmental
Management System and Environmental performance Result in a Higher Stock Price? Journal of
Investing, Winter, 1997, 6 (4): 87-97.
43
Michael V. Russo, and Paul A. Fouts (1997). A resource- based perspective on corporate environmental
performance and profitability. Academy of Management Journal, June, 40 (3): 534-559
44
Stuart L. Hart, “Beyond Greening: Strategies for a Sustainable World, Harvard Business Review
January-February 1997, 66-76.
25
22
Michael A. Berry and Dennis A. Rondinelli, “Proactive Corporate Environment Management: A New
Industrial Revolution,” Academy of Management Executive, May 1998, 12 (2): 38-50.
45
23
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