Why CEOs Should Adopt A Triple Bottom-line

With the US midterm elections just in the rear view mirror, domestic political activism and social consciousness are not surprisingly at peak levels.. Individuals are obviously energized, but so are companies. For instance, more than 135 employers including Cava, Walmart, Levi Strauss & Co, Tyson Foods, and Patagonia,  have launched campaigns to promote civic engagement and paid leave to facilitate voting in the elections.

The role of companies engaged in what is commonly  labeled as corporate social responsibility (CSR) signals a longer-term shift. More than ever before, the global C-Suite finds itself with a unique platform, and an expectation from growing numbers of employees,  to shape societal discourse, going beyond traditionally-defined CSR to address societal issues at every stage of their value chains

This presents both an enormous opportunity for companies to help reshape the capitalist system more inclusively and a tremendous challenge for them to pursue broader societal objectives in a way that can simultaneously redound to their commercial success. Yet, executives’ fear of public retribution for sharing personal convictions can often keep them from speaking up.

So why do it? There are two primary reasons.

The first is that investors increasingly want companies to adopt a triple bottom-line. There is a growing number of socially conscious investors who see environmental, social, and governance issues as criteria for investing, in addition to meeting financial performance goals. Today, investors are not only avoiding putting their money into industries that do not align with their values but are also using their investment positions to push for what they see as positive corporate change with broader societal impact.

The 2017 A.T. Kearney Foreign Direct Investment Confidence Index results affirm this trend by revealing the extent to which investors believe business leaders should play an active role in shaping government policy. ­While 78 percent of investors think business leaders should publicly advocate for policy positions that would improve economic and social outcomes, even more of them—81 percent—think executives should work directly with government leaders on developing these policies. Furthermore, about three-quarters of investors tell us they believe businesses are more efficient than governments at achieving positive outcomes.

The second reason is that many consumers want companies to take action as well. A recent A.T. Kearney survey of 400 senior executives of the world’s leading corporations finds that nearly 7 in 10 executives believe they will increasingly be expected to play important roles in society beyond meeting the narrow business interest of their companies—a statistic that holds true irrespective of region or industry. The survey findings echo the results of the 2018 Edelman Trust Barometer, which shows that citizens expect business leaders to be proactive about social change and employees are increasingly turning to CEOs for guidance on broader social issues.

Younger consumers are increasingly voting with their wallets for values-based, sustainable, and socially conscious brands. In turn, brands that are more closely associated with these values—like TOMS, Brilliant Earth, and Starbucks—are more likely to carve out a competitive advantage. And, like investors, consumers are more trusting of businesses than governments. According to Edelman, only 43 percent of the general population trusts government, compared to 52 percent for business.

But how, you might ask, are executives to speak up without potentially upsetting some constituents? I propose two strategies.

First, focus on the local impact of a company’s actions. The age of multi-localism—characterized by the preference for local communities, industries, products, cultures, and customs—is here. As more companies are focusing on their social license to operate and the value they provide to society, they are relatedly seeking a more positive impact on the communities from which they source, in which they produce, and in which they sell. These efforts are necessarily carried out and monitored at the local level, where the strongest relationships can be built between a company and its employees, customers, suppliers and other stakeholders.

Second, focus on solutions rather than rhetoric. Political grandstanding and blame throwing is counterproductive, and the companies best equipped to transition into an era of greater social impact are those that focus on positive, actionable and discernible initiatives. Nike  and Anheuser-Busch InBev are just two examples of companies that have set ambitious sustainability goals, committing to 100 percent renewable energy use by 2025 and reducing the environmental impact of their supply chains. There isn’t much controversy or fanfare around such policies but the impact is substantial— as it should be.

The benefit of the triple bottom-line, measuring fiscal, environmental and social performance, is clear. CSR has evolved from an optional, oftentimes simple image-enhancement oriented exercise with potential ancillary benefits to an integral part of the business model central to sustainable business growth. Companies making decisions to benefit not only their shareholders, but also their employees, customers, suppliers, and the community more broadly will over the longer term maximize both stakeholder and shareholder value.

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