BSR’s Aron Cramer: What’s changed since the meltdown?
"This week’s guest post comes from Aron Cramer, the president and CEO of BSR (Business for Social Responsibility), a global business network and consultancy focused on sustainability. Aron’s a great guy, BSR’s an important organization, and its annual conference is a must for people like me who want to keep up with the goings-on in corporate responsibility. Aron’s worked closely with FORTUNE 500 companies on issues ranging from climate change to labor rights in poor countries to Internet freedoms in China. Here, he looks back at the collapse of Lehman Brothers and the ensuing decline in the public’s trust in business and asks what, if anything, can be done to restore trust.
At the start of 2009, only 36 percent of the U.S. public trusted business to “do what is right”—down dramatically from 59 percent one year before—according to surveys from the PR firm Edelman. By July, trust levels in business had recovered somewhat, to 48 percent. This represents improvement, but only over last year’s depths. So just as with the economic recovery overall, it is far too early to declare victory.
For business, this is about more than winning a popularity contest. Without the public’s trust, the business climate is harder. Companies face cynical consumers, unhappy employees, and public officials who tap into this mood with punitive legislation: hardly the conditions most companies want and need.
And judging by the still raging debate over executive pay, anger at corporate practices remains intense.
There are many reasons why trust levels fell off a cliff last year, and continue to languish.
Inevitably, an economic decline brings a fall in trust. When large numbers of people feel insecure economically, business suffers, too. We like the private sector a lot more when unemployment is at 5 percent than we do when it nears 10 percent.
Business is also represented by some rather unsavory figures in the public mind right now. Bernie Madoff, Sir Fred Goodwin of the Royal Bank of Scotland, and John Thain (formerly of Merrill Lynch) symbolize this economic downturn, and for some, they symbolize the entire business community, regardless of whether their sins are widely practiced.
But the core of the problem is this: In the eyes of many, the objectives of the business sector are disconnected from broader social purposes. As U.K. Financial Services Secretary Lord Paul Myners said not long ago, too many in the financial services industry “had no sense of the broader society around them.”
That’s why so many people conclude that the economy is rigged against them. When business is viewed as consumed only with its own interests, and not wider public needs, the public is destined to be more cynical. This is especially true as the debates over health care and climate change roll on, and it is reinforced for many by the fact that companies that received government bailout funds in 2008 are paying large bonuses just months later.
What can business do to turn things around?
The Edelman survey shows that “green shoots” of trust are beginning to develop. But there’s no guarantee that these improvements will last. To make that happen, there are several steps business can take, and sustainability plays a key role.
Show how sustainability efforts serve a purpose larger than producing quarterly profits. Business is critical to our collective ability to make progress on our most pressing global challenges. Already, the world sees companies from Nike to IKEA to GE making substantial investments in reducing climate change, and companies like Levi Strauss and Coca-Cola exploring new ways to use water more efficiently. Sustainability provides a powerful answer to the claim that business is disconnected from society.
At key points in our history, business has earned the trust of the public by embracing collective challenges, not by taking an “every company for itself” approach. That principle holds true today.
Look to build innovative products and business models. Companies should focus on building a better future for society. According to Edelman’s survey, nearly 90 percent of respondents said they would trust companies that drive better innovation by investing in research and development. Many companies are picking up the mantle: Unilever and Novozymes are pioneering value chain solutions to laundries by reducing inputs and encouraging consumers to wash in cold water; the start-up Better Place wants to remake our approach to private transportation by servicing electric cars, and Clorox and SC Johnson are finding ways to reduce the chemicals in all of our households.
Double down on stakeholder engagement. Few companies can rebuild trust by themselves. Engagement – building mutually beneficial relationships with key stakeholders – is a critical tool in re-establishing their bona fides with the public. In responding to previous crises of trust, Nike and Wal-Mart found that genuine engagement is one of the best ways to turn around negative perspectives. This principle is even truer in the cacophony of the web 2.0 world. The payoff from engagement is likely to be higher today than ever before, and companies would do well to revisit their strategies for how they interact with NGOs, communities and other stakeholders. One valuable step would be to find ways for Boards to hear stakeholder perspectives on material issues. Sunlight is indeed the best disinfectant.
Align lobbying efforts with sustainability goals. The lingering concern that companies trumpet their green credentials on the one hand, while working to reduce public policy reforms on the other, has exploded in the last year. With climate change negotiations coming to a head this winter, misalignment between individual companies’ green messaging and the positions taken by the business community overall will only reinforce negative views. Those companies that are seen to be consistent and constructive will win valuable allies.
Show some restraint on compensation. Some of the rhetoric and policy proposals about executive compensation reflect more anger than insight. But business can respond to legitimate concerns about excessive pay by voluntarily restraining overly generous pay packages. Legislation is no substitute for judgment, but poor judgment will almost certainly result in ill-conceived legislation.
Measure and demonstrate positive social and environmental impacts. For a long time, it has been very difficult to demonstrate the return—for business or society—on investments in corporate responsibility. Stepping up efforts to do this will provide evidence on which to rest the case for trust. There is plenty of good work happening here: Wal-Mart has taken initial steps toward a product index, Unilever is attempting to measure how its social investments improve lives, and many companies have set audacious targets to do things like reduce waste and eliminate forced overtime in contractors’ factories.
As it stands today, the first decade of the 21st century is book-ended by Enron and Lehman. But business has a chance to write a new chapter and align its interests with those of the public so we can together confront the challenges ahead. Indeed, that is the only way for business to rebuild public trust and ensure a sustainable economic recovery.