When social issues become strategic
The contract between business and society manifests itself
in more ways than just regulation; myriad informal
agreements may require companies to meet a variety of
social obligations. New regulations can shift the ground from
under an industry and have a huge financial impact. So can
issues like privacy, obesity, and offshoring, even in the
absence of explicit rules. This issue of McKinsey on Strategy
explores the ways business executives view the social role of
modern corporations and shows how they can create value
by taking regulatory, social, and political trends into account
in their strategies. Two interviews—one with the chairman of
India's Tata Group, the other with US union leader Andy
Stern—demonstrate how globalization has raised the stakes
and made it ever more important to manage a diverse social
and political environment.
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The case for incorporating an awareness of social and political
trends into corporate strategy has become overwhelming.
Issues such as privacy, obesity, offshoring, and the safety of
pharmaceutical products can alter an industry's ground rules, and the financial
and reputational impact of mishandling these issues can be huge. But they also
create new market opportunities that nimble companies can exploit.
Companies should look for signs of emerging hot topics, be ready to
respond to them early, and place a series of small strategic bets that will create
value if the social and political landscape shifts.
CEOs must be willing to ensure that different parts of their own
organizations are united behind a coherent approach, to engage in external
debate, and to consider collaboration with others.
This article includes the following exhibits:
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Exhibit 1: The social contract has formal and informal components.
(Interactive)
Exhibit 2: Emerging sociopolitical megatrends are shaping
expectations. (Interactive)
Exhibit 3: Articles in the New York Times reveal a significant turn in
the obesity debate.
Exhibit 4: Organizational coordination is essential.
When social issues become strategic
Executives ignore sociopolitical debates at their own peril.
Sheila M. J. Bonini, Lenny T. Mendonca, and Jeremy M. Oppenheim
2006 Number 2
Executives with lingering doubts about the importance of sociopolitical
issues to business will surely be convinced by this year's eye-catching
McKinsey Quarterly survey on the topic. It's not just that an
overwhelming majority of the respondents acknowledged a wider role for
corporations than just maximizing investor returns, though this finding is
remarkable in itself. More striking still is the way participants in our online
poll saw environmental concerns, the offshoring debate, data protection,
and other sensitive matters as potential threats to the creation of value
and frankly conceded that their companies handled these issues poorly.
Although lobbying—often behind closed doors—is as old as business itself,
high-level and concerted corporate activism in the social and political
arena has been conspicuous by its absence. That deficiency, executives
tell us, is the result of short-term financial pressures, a lack of familiarity
with the issues, and the sense that specialists in the public-affairs and
legal departments handle this sort of thing.
Such thinking, we believe, is dangerous and wrong headed. Business
leaders must become involved in sociopolitical debate not only because
their companies have so much to add but also because they have a
strategic interest in doing so. Social and political forces, after all, can alter
an industry's strategic landscape fundamentally; they can torpedo the
reputations of businesses that have been caught unawares and are seen
as being culpable; and they can create valuable market opportunities by
highlighting unmet social needs and new consumer preferences.
The challenge is to find a way for companies to incorporate an awareness
of sociopolitical issues more systematically into their core strategic
decision-making processes. Companies must see the social and political
dimensions not just as risks—areas for damage limitation—but also as
opportunities. They should scan the horizon for emerging trends and
integrate their responses across the organization, so that the resulting
initiatives are coherent rather than piecemeal.
The social and managerial challenge
Businesses have never been insulated from social or political expectations.
What's different today is the intensifying pressure and the growing
complexity of the forces, the speed with which they change, and the
ability of activists to mobilize public opinion. Yet even as the social
contract evolves, the typical corporate response appears to have become
increasingly flat footed.
The changing social contract
Companies have always had a contract with society. The contract
embraces not just direct stakeholders (such as consumers, employees,
regulators, and shareholders) but also, and increasingly, a broader set of
stakeholders (such as the communities where companies operate, the
media, academics, and the nonprofit sector).
Part of this contract (Exhibit 1) is formalized in laws and regulations, and
violating them has obvious legal ramifications. Part of it is semiformal:
the stakeholders' implicit expectations, which if ignored can bring about
swift action. Most multinationals in the United States, for example, are
expected to maintain at least some labor standards along their global
supply chains, even if they aren't legally required to do so. Violations of
that semiformal contractual obligation can seriously harm a company's
reputation as well as consumer demand for its products. Ask Nike.
Your javascript is turned off. Javascript is required to view exhibits.
This social contract is by nature a fluid one. Often, issues that lead to
legislation start out as semiformal expectations about business; likewise,
some aspects of the formal contract are "deregulated." Companies in
Europe, for example, are still expected to uphold certain employment
guarantees with their workers, despite their greater flexibility in deploying
labor.
More challenging are the "frontier" issues that have not yet entered the
formal or semiformal contracts but could, over time, become social
expectations—something that business might not even realize. Take
obesity. It had always been widely believed that the responsibility for
avoiding it lay with individuals, who choose what they eat, not with the
companies that make or sell fattening products. But the blame is shifting,
much as the debate around tobacco shifted the responsibility from
individuals to an industry perceived to be aggressively marketing
addictive products. Food companies may not be forced to modify the fat
and sugar content of their products, but the momentum on this issue
could already be so great that lawmakers or regulators will step in and
formalize social expectations by imposing new legal restraints.
Rising expectations
Increasingly, a company's sources of long-term value (for example, its
brand, talent, and relationships) are affected by a rising tide of
expectations among stakeholders about the social role of business. Two
forces are colliding: an emerging set of sociopolitical megatrends (Exhibit
2) that are upending the lives of people, communities, and societies, as
well as ever-more-powerful stakeholders wielding wide influence.
E X H I B I T
2
Types of megatrends affecting sociopolitical environment
in which business operates
Trends
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Blurring boundaries between responsibilities and laws
Butterfly effect
Discontinuities in demographics and resources
Growing safety, security concerns; sensitivity to risk
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Rising inequality
Shifting values, social norms
Ubiquity of technology
Previous Trend | Next Trend
Blurring boundaries between responsibilities and laws
It is increasingly unclear who should provide basic social services (eg,
pensions, public-health services, school infrastructure), regulate business
and personal behavior (eg, self-regulation vs government oversight), and
be accountable for protecting rights, public goods, and resources.
What it means for business (selected examples):
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Responsibility for obesity shifting from individuals to companies in
food and beverage sectors
Provision of insurance benefits shifting from employer to employee
Since 1990, more than 100,000 new citizens' groups have been
established around the world. Even in China, a country not known for
freedom of political expression, the number of social protests increased
from just under 10,000 in 1993 to more than 58,000 in 2003.1 The
balance of power has shifted in favor of individuals and small single-issue
groups increasingly armed with tools and tactics that can easily be
deployed through the Internet. Trust in nongovernmental organizations
(NGOs), citizens' groups, and online information sources has risen as
inexorably as faith in business—Enron, WorldCom—has declined.
Management's slow reaction
Large organizations must shift their thinking in this area. Typically,
businesses are taken by surprise when faced with negative press and
stakeholder pressure. After all, they provide plenty of benefits to
society—products of good quality or low prices—and employ vast numbers
of people. Yet the rising tide of expectations means that companies must
now strive to anticipate and understand those expectations and to embed
them in their business strategy.
In the banking industry, for example, money center banks have been
caught out by higher expectations. Criticized for making loans to
companies that damage the environment, several have now pledged, in
different ways, to restrict their lending and underwriting for industrial
projects that would have an adverse environmental impact. These moves
were largely reactions to protests coordinated by the Rainforest Action
Network.
Companies are often on the defensive because CEOs and others in the top
team find it difficult to wield what Harvard's Joseph Nye calls "soft forms
of power"2 or to deal with players, such as NGOs, that trade in emotional
arguments. By comparison with the hard skills and in-depth knowledge of
most senior executives, sociopolitical issues require statesmanship, the
fostering of relationships with stakeholders, and the nurturing of assets
that could be called "reputational." Irritatingly for many executives, the
arguments of pressure groups are frequently low on evidence.
Furthermore, estimating the impact of most sociopolitical trends on
corporate value requires executives to make assumptions and test
sensitivities that MBA textbooks generally don't discuss.
How to manage these forces
We believe that the case for adopting a wholeheartedly strategic approach
to the sociopolitical agenda is threefold. First, these forces can alter an
industry's landscape in fundamental ways. In pharmaceuticals, for
instance, social concerns about the cost and safety of the industry's
products, as well as access to them, have made the regulatory
environment tougher during the past decade. CEOs should take part in
the debate so that they, their employees, and their investors have a
stable set of rules.
Second, the immediate financial and longer-term reputational impact of
social issues that backfire can be enormous. Ask Monsanto, which lost
significant market value in the backlash against genetically modified
organisms (GMOs) in the European Union, or ExxonMobil, whose cleanup
costs for the Exxon Valdez oil spill amounted to $2 billion—on top of $5
billion in lawsuits.
Finally, new product or market strategies can emerge from changing
social and political forces. Toyota Motor's success with the Prius can be
attributed to a growing interest in environmentally friendly products.
Unilever's innovative product offerings in developing countries, such as its
Wheel detergent brand in India, were a response to the unmet needs of
lower-income consumers there.
At the practical level, a company can take a number of steps aimed at
making its approach to sociopolitical issues more strategic. It can develop
"radar" systems to anticipate future risks and opportunities, master the
range of options available for dealing with them, engage in the external
debate, and ensure that the entire organization takes part in a coherent
and forceful way.
Develop reliable radar
Sociopolitical issues and regulatory shifts may appear to come out of the
blue. But the success of savvy newcomers such as Whole Foods Market
confirms the fact that companies can indeed spot new trends and that
early-warning signs of imminent change are plentiful. Not all issues, of
course, evolve in a way that changes the social contract. Nonetheless, an
early awareness of the concerns of NGOs and stakeholders enables
companies to join and shape the debate before it turns against them—or
at least to prepare themselves for turbulence ahead. Businesses that end
up publicly fighting their stakeholders can well damage the brand or
destroy the morale of their employees; much better to engage in a minor
strategic foray than to be forced into a full-scale war.
In fact, our survey suggests that executives already know that they need
to anticipate social pressure much more successfully. In our view, they
should use systematic methods, including trusted techniques such as
economic analysis and scenario planning, to evaluate the strategic impact
of sociopolitical trends. If companies had tracked topics such as the
obesity debate in the media, they would have become aware that reports
on those issues were appearing more and more frequently in the mid1990s. But volume alone isn't a sufficient guide. New evidence from, say,
a well-respected academic can quickly change the dynamics of an
argument. The obesity debate is one of those that took a significant turn
during the 1990s. We can measure the change by following articles in the
New York Times (Exhibit 3): blame for the problem shifted from
individuals (overeating, lack of exercise) to "environmental" causes,
including corporate marketing. The new outlook was at least in part the
result of research by Harvard's Walter Willett showing a link between
childhood obesity and the marketing of junk food.
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Large-scale problems generally start as small regional ones before
Western NGOs champion them
Local antennae are also vital. Large-scale problems generally start as
small regional issues before they are championed by larger, typically
Western NGOs that have the clout and media contacts to launch global
campaigns. The triggers are often practices—for example, working
conditions that are below Western standards or "facilitation payments" to
local government officials—that seem acceptable in some countries but
not others. These practices may have a detrimental effect on corporate
reputations when activists highlight and replay them for a global audience.
What's more, the damage will be done notwithstanding any ethical
policies that may have been promulgated throughout a business. Most
companies become aware of the risks only at this late stage, when their
direct stakeholders have already started to change their behavior.
Mapping the landscape of different stakeholders is therefore important for
a company's sociopolitical radar system. An understanding of the
influence of various groups, their agendas, and their level of activism is a
vital first step before a company chooses the best partners for its sociopolitical strategy.
Companies should aggregate this information to identify where they are
most at risk and the economic implications of potential actions by
stakeholders—particularly when they face a number of issues all at once.
To evaluate what's at stake, companies must scan the whole value chain,
looking, for example, at the way they source raw materials and make and
sell their products. They should develop potential future scenarios that
take into account the reaction of competitors, shifts in consumer patterns,
and the possibility of litigation and regulation. Governments, for instance,
may ultimately regulate the sale of fast food in schools through legislation
or enhanced nutritional requirements for any foods sold in them (this
issue is currently under debate in the California legislature). Alternatively,
the success of several class action lawsuits could force the food and
beverage industry to negotiate multiyear settlements. At the consumer
level, educational campaigns and articles in the media will likely promote
healthier options for food.
Place strategic bets
Armed with a more solid approach to the management of social issues,
companies can not only reduce the risk to their reputations by
anticipating new regulations but also create value by making the most of
social and political shifts.
Indeed, companies should place bets on opportunities that emerge from
their radar-tracking activities. Toyota's Prius is an example: the car's
initial success puts the company in a position to move hybrid technology
toward profitability faster than its competitors can as well as to augment
its reputation by helping to address environmental issues—even if the
jury is still out on the technology's effectiveness. GE's ecomagination
initiative, reinforcing the company's commitment to clean products and
reduced emissions, is a relatively low-cost, low-risk way of anticipating
products and services that might be built on the back of emerging
sociopolitical trends.
In general, more uncertain circumstances warrant a broad set of strategic
options, and less uncertain circumstances warrant more narrow ones. To
cope with emerging sociopolitical issues, we would expect companies to
use a wide range of small investments that should be culled and narrowed
as the issues move further into the explicit social contract with business.
Given the unpredictable way socioeconomic trends develop, a strategy
using a portfolio of initiatives is particularly relevant.3
Participate in the external debate
CEOs should also be prepared to take the lead in socioeconomic debates
that could alter the structure of their industries and the rules of
engagement in the long term. Business, in essence, involves a series of
complex and continually evolving social trade-offs. In the power sector,
the goals of low prices, energy security, and environmental friendliness
are in permanent tension. So are the affordability of drugs, product safety,
and innovation in pharmaceuticals. Business leaders need to raise the
public's understanding of these unavoidable trade-offs.
The seminal 1997 speech of John Browne, BP's CEO, on global climate
change—when he promised that BP would become an active, concerned
participant in dealing with the problem of global warming—was notable as
the first time a multinational corporation (other than a reinsurance
company) had joined the emerging consensus on the topic. Bruce
Bodaken, of Blue Shield of California, was the first health plan CEO to
offer a proposal specifically for universal health coverage in his state.
To reduce uncertainty for all players, including investors, businesses need
stable guidelines about the future evolution of their industries. An analogy
can be made with the technological shifts that occur before industries
adopt common standards. Industry leaders are in a strong position to
ensure that a rational, evidence-based discussion of social and political
trade-offs takes place. Without such a discussion the social contract
remains unpredictable, investors suffer, and the social benefits of finding
appropriate solutions are deferred.
Like any strategic shift, calls for change in the social contract involve a
degree of risk. But if a company could be seen to have any responsibility
for causing a sociopolitical problem, change is a no-regrets move,
particularly for an industry leader that has the scale to alter the market.
In some cases, change can confer a clear strategic advantage: for
example, after the "blood diamonds" campaign,4 De Beers helped to
develop a global certification system that enabled it to charge a premium
for diamonds mined in conflict-free areas. Few companies get involved in
a sociopolitical debate at the stage when they might be at risk for being
ahead of the curve. The prevalent risk is not getting involved early
enough.
Collaborate, cooperate . . .
Many sociopolitical issues are intractable and can't be resolved by a single
company or even an industry. The most successful companies see beyond
competitive rivalries and look for collaborative ways both to meet social
concerns and to find new ways for industries to create value. The
difficulty is knowing when to work with others and when to go it alone.
Working across different organizations with different cultures can be time
consuming and slow moving; Nike and other branded marketers took
seven years to establish the Fair Labor Association to strengthen labor
rights in the supply chain. Industry associations often lack the capabilities
to tackle broad issues across a sector, as well as the power to mobilize
enough support. That's why CEOs of mining companies recently set up a
new body, separate from the existing industry association (the
International Council on Mining & Metals), to take on the sociopolitical
issues facing them.
Coca-Cola and PepsiCo have benefited from a common approach to
marketing to children under 12: both have a clear policy not to market
their core carbonated soft drinks to this group. For other collaborative
efforts, the attractions are the potential revenue upside and the ability to
share costs. As a rule, companies should consider responding on their
own if they think they can capture the first-mover advantage (as BP did in
acknowledging the dangers of global warming), if they are a target, or if a
collective approach is too difficult or costly. Collaboration can be
attractive if the stakeholders regard all companies as equally culpable, if
regulation is imposed on an entire industry, or if isolated, individual action
would clearly destroy value.
. . . and coordinate
As our survey indicates, most business executives expect CEOs to take
the lead in managing the corporate sociopolitical agenda. What's more
important, though, is how well companies integrate such issues not just
into the making of strategy but also across all dimensions of the business
(Exhibit 4). A piecemeal approach runs the risk of misalignment—a CEO
saying one thing, the rest of the company failing to translate these fine
intentions into practical action. A company whose externalcommunications strategy emphasizes the search for more
environmentally friendly products and processes, for example, probably
won't make much headway if the company's government and regulatory
functions are simultaneously fighting limits on carbon dioxide emissions.
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Without a CEO's personal involvement, sensitivity to the sociopolitical
agenda probably won't become embedded in an organization's culture and
values. Neither will organizational coordination—always difficult to achieve
across different divisions and functions—for the CEO plays a vital role
orchestrating departments (such as PR, legal, regulation, and marketing)
that ordinarily wouldn't act in concert. When CEOs such as BP's John
Browne and GE's Jeff Immelt show their personal commitment, the
response from stakeholders is remarkably positive.
Sociopolitical trends will increasingly affect the strategic freedom of
companies, which just can't ignore the rising tide of expectations resulting
from these trends and the power and influence of the stakeholders who
mobilize around them. For stakeholders, companies are, in many ways,
already agents of social change and must become much more deliberate
in understanding the way they affect society. Businesses that follow the
approach we outline and proactively understand and engage with social
issues will benefit most. They will be better able to shape the social
contract and to identify ways of creating value from the opportunities and
risks arising from sociopolitical issues.
About the Authors
Sheila Bonini is a consultant in McKinsey's Silicon Valley office, Lenny
Mendonca is a director in the San Francisco office, and Jeremy
Oppenheim is a principal in the London office.
The authors would like to thank McKinsey alumni Daniel Litvin and Judy
Wade for their contributions to this article.
Notes
Kathleen E. McLaughlin, "Chinese protesting more as social problems
grow; Beijing may find it hard to retake the reins," San Francisco
Chronicle, May 1, 2005.
1
Joseph S. Nye Jr., Soft Power: The Means to Success in World Politics,
Cambridge, MA: PublicAffairs, 2004. While Nye's ideas are more
commonly understood in the geopolitical arena, they have strong
implications for the business world as well, particularly in regard to
sociopolitical issues.
2
For more, see Lowell L. Bryan, "Just-in-time strategy for a turbulent
world," The McKinsey Quarterly, 2002 special edition: Risk and resilience,
pp. 16–27.
3
During the 1990s, revenues from diamond mining were used to finance
civil conflicts in some African countries, including Angola, Liberia, and
Sierra Leone. The Western NGOs Global Witness and Partnership Africa
Canada mounted a campaign demanding an end to sales of "conflict
diamonds," focusing on De Beers as the biggest diamond producer.
4
The McKinsey Global Survey of Business Executives :
Business and Society
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Executives around the world overwhelmingly embrace the idea that
the social role of a modern corporation goes far beyond meeting its obligations to
shareholders, according to the latest McKinsey Global Survey of Business
Executives.
Yet executives, wary of the risks such obligations bring, say that
their companies aren't adept at anticipating or managing social obligations.
Executives believe that CEOs must take the lead in managing
sociopolitical issues and that effective tactics include ethics policies, stakeholder
engagement, and transparency about the risks of products or processes.
This article's exhibits display respondents' views on the role of
business in society.
The McKinsey Global Survey of Business Executives :
Business and Society
Executives say they face a host of worries about society's expectations of
their companies, which can—and must—do better.
Web exclusive, January 2006
Table of Contents
Introduction
Accepting social responsibility
Admiration is hard to win
Doing good to look good
Threats and opportunities
Health care leads the way
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Premium Members can get these results plus additional survey
findings by clicking on the download PDF icon in the toolbar above.
Executives around the world overwhelmingly embrace the idea that the
role of corporations in society goes far beyond simply meeting obligations
to shareholders, according to the latest McKinsey Quarterly global
survey.1 But executives also say that, for most companies, sociopolitical
issues—such as environmental concerns and the effects of offshoring—
present real risks. Indeed, finding ways to control them is so important,
the executives say, that the effective management of sociopolitical
concerns must start with the CEO.
Executives are far less certain, however, that corporations adequately
anticipate which sociopolitical concerns will affect them. These executives
also believe that the tactics—lobbying and public relations, for example—
companies now use to meet such concerns are not the most effective
ones. In addition, they think that the public will expect corporations to
take on a significant role in handling the new pressures.
Notes
The McKinsey Quarterly conducted the survey in December 2005 and
received responses from 4,238 executives—more than a quarter of them
CEOs or other C-level executives—in 116 countries.
1
Table of Contents
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Introduction
Accepting social responsibility
Admiration is hard to win
Doing good to look good
Threats and opportunities
Health care leads the way
Business executives across the world overwhelmingly believe that
corporations should balance their obligation to shareholders with explicit
contributions "to the broader public good." Yet most executives view their
engagement with the corporate social contract as a risk, not an
opportunity, and frankly admit that they are ineffective at managing this
wider social and political issue.
Our findings highlight some of the key issues that businesspeople expect
stakeholders, social and consumer activists, and the media to raise during
the next five years. The responses provide striking evidence of the way
environmental concerns, doubts about data privacy, the controversy
around offshoring, and other sociopolitical matters have firmly inserted
themselves into the day-to-day agenda of the executive suite.
Unquestionably, the global business community has embraced the idea
that it plays a wider role in society. More than four out of five
respondents agree that generating high returns for investors should be
accompanied by broader contributions to the public good—for example,
providing good jobs, making philanthropic donations, and going beyond
legal requirements to minimize pollution and other negative effects of
business. Only one in six agrees with the thesis, famously advanced by
Nobel laureate Milton Friedman, that high returns should be a
corporation's sole focus (Exhibit 1).2
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These responses, from a group of largely private-sector executives, show
strong global support for a wider social role. The most enthusiastic
proponents are executives in India: 90 percent of them endorse the
"public good" dimension. Executives based in China are the most
lukewarm, with 25 percent saying that investor returns should be the sole
focus of corporate activity.
Notes
"There is only one responsibility of business, namely to use its resources
and engage in activities designed to increase its profits." This quotation
originally appeared in "The social responsibility of business is to increase
its profits," New York Times Magazine, September 13, 1970.
2
Table of Contents
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
Introduction
Accepting social responsibility
Admiration is hard to win
Doing good to look good
Threats and opportunities

Health care leads the way
Respondents are mostly upbeat about the broad impact of business on
society: some 68 percent say they are either "generally" or "somewhat"
positive about the contribution that large corporations make to the public
good. The proportion jumps to 76 percent when executives are asked if
their own companies make a positive contribution.
Yet many respondents stress the risks to the reputation of companies, as
well as the potential for damaging their shareholder value, when they are
expected to address social and political concerns. Across most sectors—
notably consumer-facing ones—nearly three in ten respondents say that
the media or interest groups have criticized corporations in their
industries for "failing to meet social responsibilities generally expected of
them but not required by law."
Executives believe that the solution lies in their own hands. Asked how
adequately the respondents' companies anticipate social pressure—
including criticism of their activities—46 percent say that they have
"substantial room for improvement," and a further 24 percent admit to
seeing "some room." Only 3 percent report that their companies are doing
a "good job."
One explanation for these shortcomings appears to be that companies are
taking the wrong approach. The respondents were asked which tactics
their companies actually rely on most frequently and which tactics they
themselves consider most effective—whether or not the companies
actually use these effective tactics. Almost half of the respondents say
that their companies are currently lobbying regulators and governments
and using the media and public relations as part of a strategy to manage
social and political challenges. But when executives are asked what
tactics they consider most effective in managing such challenges, only 35
percent propose using the media and PR. A mere one-quarter recommend
lobbying. A significantly higher proportion of the executives hold that the
most effective tactics are policies on ethics and other corporateresponsibility issues, stakeholder engagement, and increased
transparency about the risks of products or processes (Exhibit 2).
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Table of Contents
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
Introduction
Accepting social responsibility
Admiration is hard to win
Doing good to look good
Threats and opportunities
Health care leads the way
The choice of tactics is also an issue in assigning leadership. Asked who
actually takes the lead in trying to manage the sociopolitical agenda of
their companies, more than half of our respondents point to the chair or
chief executive. A further 14 percent report that the public- or corporateaffairs department typically holds the reins. When asked who should take
the lead, however, almost three-quarters opt for the chair-CEO and a
mere 4 percent for the public- or corporate-affairs department (Exhibit 3).
Judging by our survey, executives are hard-nosed about why companies
are engaging in this new agenda. Only 8 percent think that large
corporations champion social or environmental causes out of "genuine
concern." Almost nine in ten agree that they are motivated by public
relations or profitability, or by both concern and and business benefits in
equal measure.
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Table of Contents

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Introduction
Accepting social responsibility
Admiration is hard to win



Doing good to look good
Threats and opportunities
Health care leads the way
Looking ahead, executives expect that a wide range of concerns will
dominate public and political debates. Asked which three issues will have
the most impact, for better or worse, on the shareholder value of
companies in their industries during the next five years, 41 percent
choose job loss and offshoring. Also at the top of many minds are
corporate political influence and involvement; environmental issues,
including climate change; pension and retirement benefits; and privacy
and data security (Exhibit 4). Surprisingly, perhaps, human-rights
standards—a cause long championed by nongovernmental organizations—
barely register as a concern. Among notable regional and industry
differences, 47 per-cent of the respondents in North America mention
health care and other employee benefits, while 39 percent of banking and
finance executives point to privacy and data security.
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Although executives generally see a mix of risks and opportunities across
the sociopolitical landscape, a majority tend to view most of the main
issues as potential threats (Exhibit 5). Some see opportuni-ties, however.
In all, there were 15 categories of issues. On balance, respondents
express more optimism than pessimism in 5 of them: demand for
healthier or safer products, for more ethically produced products, and for
investment in poor countries, as well as human-rights standards and job
loss and offshoring.
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Table of Contents
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Introduction
Accepting social responsibility
Admiration is hard to win
Doing good to look good
Threats and opportunities
Health care leads the way
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With executives generally positive about the wider social role business
plays, which specific industries make the greatest overall contribution to
the public good? Health care, mentioned by 49 percent of the respondents,
tops all other sectors by a notable margin (Exhibit 6). Despite the highprofile attacks of some interest groups, the pharmaceutical sector
(buoyed particularly by North American support) also does well. More
than a quarter of the respondents cite either agriculture, especially valued
in China and India, though less so in Europe, or telecommunications,
notably popular in developing countries, including China.
Such optimism is encouraging, since there is no sign that the new
pressures on business will go away. According to the survey, 20 percent
of the respondents believe that the public will expect companies to take
on most of the added responsibility for handling social and political issues,
while an additional 59 percent think the burden will fall equally on
governments and companies.
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The UN's role in corporate social responsibility
The UN's corporate-citizenship initiative, the Global Compact, has enrolled
more than 1,800 corporations, which have agreed to support human
rights, environmental protection, and noncorrupt business practices.
Unfortunately, participation—particularly by US companies—has fallen
short of expectations.
The take-away
Some 40 percent of the compact's participants say that it had a good
effect on their corporate citizenship, but hard work lies ahead to generate
the insights and practical tools needed to implement its principles and to
change the world's corporations for the better.
This article includes the following exhibits:
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Exhibit 1: Effect on organizational change of participation in UN
Global Compact
Exhibit 2: Types of actions taken by UN Global Compact
participants
The UN's role in corporate social responsibility
The UN Global Compact has become a major force promoting corporate
social responsibility, but not enough US companies are participating.
Maria E. Blair, Antony J. Bugg-Levine, and Thomas M. Rippin
2004 Number 4
A global movement that aims to encourage businesses to pay closer
attention to their social impact has gained momentum in recent years. It
received a boost in 2000, when the United Nations got involved:
Secretary-General Kofi Annan launched the Global Compact, a voluntary
association that asks corporate participants to uphold ten principles
relating to human rights, labor, the environment, and noncorrupt
business conduct.1 Ever since, the Global Compact has pursued this
agenda by publishing universal guidelines on corporate social
responsibility and creating a network that companies, nongovernmental
organizations (NGOs), labor groups, and UN agencies can use to share
ideas about how to create better corporate citizens.
A study of the compact2 shows that although participation in it has fallen
short of expectations, particularly in the United States, it has become an
important driver of corporate social responsibility, with 40 percent of the
companies surveyed reporting that it had a positive effect (Exhibit 1).
Projects in which companies, UN agencies, and NGOs collaborate for
purposes such as helping businesses develop their own human rights
policies or improve their health and safety guidelines are the most
common way of supporting the compact's goals (Exhibit 2).
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As companies across the planet work to implement the compact's
principles, certain trends have emerged. Many businesses in the
developing world participate because efforts to show their concern about
health, safety, and environmental codes help them obtain supplier
contracts from multinationals. Companies in the developed world focus on
human rights—for example, by finding and eliminating possible areas of
discrimination. One of these companies, Novartis, asked two Asian NGOs
to see if it was paying sustainable wages to its global workforce. A survey
by the two groups found that part-time staff supplied by contractors in
Novartis's home country, Switzerland, were not being paid acceptable
wages. The company swiftly rectified this problem and has since
developed an explicit worldwide compensation policy for all of its workers,
whether employed by Novartis or by contractors.
Providing a forum to build such relationships is the compact's primary
goal. Recruiting diverse groups and encouraging them to participate
actively is challenging, however, and divergent expectations have
resulted in frustration. Only 14 percent of the participants in the compact
have either made a submission to its online learning forum—posting
examples, case studies, and descriptions of projects that incorporate its
principles in their daily operations—or taken part in its international
meetings. Those who have attended feel that best-practice workshops (as
well as Web-based forums) should cover less ground and provide more
practical advice on the compact's implementation.
As the study shows, above all, companies seek practical tools for carrying
out the principles of the compact. To serve all its constituents well, we
believe that its leaders should convene smaller, more frequent meetings
on distinct topics. A conference for first-timers to discuss basic
approaches to corporate citizenship, for example, would spare veterans
the need to review what they already know. Gatherings focused on
specific topics, such as human rights policy, would create a more
conversational setting where participants could gain practical knowledge
and learn from one another's experience. The office that administers the
compact expects that when participating businesses understand better
how it can meet their specific needs, they will become more involved in
its programs. Until then, inconsistent participation threatens its long-term
credibility.
Moreover, some NGOs, labor groups, and UN participants see the
compact as the only organization with enough influence to make
universally applicable statements about corporate social responsibility.
Therefore, if its participants' geographic distribution doesn't reflect the
real corporate universe, it may not be considered legitimate. By
September 2004 some 1,800 companies had signed up, but only about
100 of them were based in the United States. The study found that for
many executives, the appeal of the compact stems less from the tangible
benefits of membership and more from its association with Kofi Annan
and from the belief that agreeing to its principles signals a serious
commitment to social responsibility. US companies, however, are
generally more skeptical of the benefit of associating with the UN and
more wary of lawsuits if they fail to adhere to the principles of the
compact. Nonetheless, its leaders say that these attitudes are changing.
In May 2004 the American Bar Association helped draft a letter intended
to limit the liability of signatory companies. Once it was made public,
more US companies signed on—perhaps evidence that their legal
concerns had been assuaged.
About the Authors
Maria Blair is an associate principal in McKinsey's Washington, DC, office,
Antony Bugg-Levine is a consultant in the New York office, and Tom
Rippin is a consultant in the London office.
Notes
The Global Compact's ten principles can be found at
www.unglobalcompact.org. The tenth, dealing with corruption, was added
in June 2004.
1
The study, conducted for the UN Global Compact, drew on nearly 60
interviews and 370 completed surveys from Global Compact participants,
on an analysis of its documentation and databases, and on publicly
available information.
2