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Corporate Social Responsibility (CSR) is an idea that corporations have to consider the interests of customers, employees, shareholders, communities, and ecological considerations in all
Socially responsible investing (SRI) describes an investment strategy which combines the intentions to maximize both financial return and social good.

green@work : Magazine : Back Issues : Jul/Aug 2005 : Cover Story

Cover Story

Protecting Brand Value:

How (and Why) the World’s Most Valuable Brand
is Building a Corporate Cititzenship Pyramid

by Peter Asmus

A debate is raging through the pages of the world’s leading business periodicals. Boiled down to its essence, the fundamental question seems to be this: Is it good business to be a good business?

On one side are the traditional bottom-liners: publications such as The Economist, Forbes and The Wall Street Journal. The Economist has received the most attention lately due to a stinging criticism of the concept of “corporate social responsibility” in November 2004 on the eve of the World Economic Summit held in London.

On the other side are the so-called “triple bottom liners”—magazines such as Wired, Fast Company and Across-the-Board, which pay more attention to the intangibles that bring value to corporations. They suggest that well-run companies do more than just maximize profits—their performance spans a “triple bottom line” that includes social and environmental returns as well.

Jean Rogers, principal associate for ARUP and consultant to the Global Reporting Initiative (GRI), agrees with much of the critique of corporate social responsibility (CSR) that appeared in The Economist. “Right now, the field of CSR is storytelling. Some rigor has to be brought to it; some comparability is necessary. The Economist pointed to simple things like defining standardized units for reporting on quantitative parameters like greenhouse gas emissions. They point to the lack of responsibility and accountability by the standards-setting bodies. We can’t fault companies for having sloppy reports if the standards-setting bodies are not actually establishing good standards.”

The Economist highlighted a major difference between standards for financial versus social responsibility, Rogers said. While financial standards are overseen by broadly supported institutions like the Federal Accounting Standards Board and the International Accounting Standards Board, there are no equivalent institutions to oversee CSR standards. This has been a big impediment for the field of CSR.
Others claim the much-debated article was off base. “The Economist article came out eight years too late,” said David Vidal, director of corporate citizenship at the prestigious Conference Board, whose 1,000-plus corporate members include most of the world’s leading companies. “CSR is a deepening phenomenon. We are certainly done with the first phase of CSR, the idea that this is something new. We are currently in the second phase: How do we do it? The so-called ‘at work’ phase, a time when one lends discipline to the exercise.”

Why do companies care about delivering more than financial returns? According to Vidal, it is because most of a company’s value—and hence its return to shareholders—is tied up in intangibles like reputation, customer loyalty and the intellectual capital held by its employees, claimed Vidal. As evidence, he compared any large company’s book value (the value of its physical assets and cash) with its market value (the value investors set for it), which is often several times higher. What is the difference? It is the value of the company’s reputation, the loyalty of its customers and employees, and the confidence of investors that its human and intellectual capital won’t walk out the door.

Coca-Cola is a good example. Coke is the world’s most valuable brand name, according to the 2005 Business Week/ Interbrand annual ranking of top global brands, and is consistently ranked as one of the three most reputable companies in the world, according to the Reputation Institute.
If every physical component of Coca-Cola’s operations—its bottling plants, trucks and raw materials—were to disappear tomorrow, the company would still maintain most of its market value. The name “Coca-Cola” carries extraordinary power.

“ The tradition and heritage of Coca-Cola (are) rooted in communities and locations,” said Perry Cutshall, director of operations of The Coca-Cola Company, Global Public Affairs. “Our company’s assets reside in these communities that range from the very small to the global. So, good corporate citizenship is not new to us. It is part of the DNA. That’s why we have such great brand value.”

But brand value can be vulnerable. With more than 300 top-tier partners and suppliers in 200 countries—many of them separate companies that operate independently of the Atlanta-based parent—Coca-Cola executives know that any action attributed to any affiliate anywhere in the world, true or not, can impact the brand’s reputation everywhere.

When wells began to run dry in the Indian state of Kerala during a drought in 2001, citizens and activists were quick to blame Coca-Cola’s newly opened local bottling plant. The state of Kerala then sued the company for misuse of water resources. While lower courts have sided with Coca-Cola, Kerala has appealed the case to the Supreme Court of India, and Coca-Cola’s public-relations woes in the country continue.
And in the Internet age, the double-edged sword of high visibility can be especially difficult to control. A recent article in The Wall Street Journal revealed that, for the past three years, many of the ongoing pressure campaigns against Coca-Cola’s operations in India have been coordinated and fueled by the Web site of a single activist in California.

That raises the stakes for corporate responsibility. The water controversy in India spurred Coca-Cola to do some soul searching, and make water management a key focus of its new global corporate citizenship program. “We realize that the world’s operating environment is much smaller than it used to be,” stated Cutshall. “With today’s communication technology, everything you do is known all over the world very quickly.”

Citizenship@Coca-Cola—a 360-degree View of CSR
To protect its core asset—its name—Coca-Cola launched a global initiative in late 2003 to drive high standards of “global corporate citizenship” throughout its network of bottlers, distributors and suppliers. Called “Citizenship@Coca-Cola” (C@CC), the program’s objective is to measure and drive improvement in four key areas: workplace, community, marketplace and environment.

The basis for C@CC is a Global Citizenship 360 (GC360) assessment process developed by the company and The Future 500, a non-profit that links leading corporations with the issues and concerns of their stakeholders. (The process, which was profiled briefly in “Avoiding Survey Fatigue” in the summer 2005 issue of green@work, has been dubbed “360” because it in essence allows a company to get a complete round-about view of its past, present and future.) The GC360 measures the company’s performance against its own internal criteria, as well as leading standards of corporate responsibility, such as the Dow Jones Sustainability Indexes, FTSE4Good, Global Compact and the Domini Social Index. It also organizes the information into a standard framework for reporting on sustainability called the Global Reporting Initiative (GRI), which is currently employed by more than 630 companies worldwide.

“ One would think that a universal standard would be simple, but you have to remember that Coca-Cola operates in virtually every country in the world, where values and principles are culturally driven or, in some cases, are single-issue-driven,” observed Cutshall. “And when one goes beyond that and wanders into the realm of social issues, the task becomes even more difficult. The idea that we could arrive upon one universal CSR standard is hard for me to accept. A global standard that can apply to six billion people organized—or disorganized —around the globe, is, in my view, an impossibility, an exercise in futility.”

Because of that, “There is no one single set of external standards that is a perfect fit for Coca-Cola.” The GC360 process enables Coke and its suppliers to see how they perform against a wide array of stakeholder expectations.

With funding from Castle Rock Foundation, Bank of America, Coca-Cola, Mitsubishi, Nike and Global Futures Foundation, The Future 500 developed Version 1.0 of the GC360 process in 2002. Since that time, more than 75 companies have applied the tool around the world, including General Motors, Hewlett-Packard, Conoco-Phillips and corporate members of The Conference Board. Companies like Coca-Cola have customized the GC360 to include their own set of CSR criteria. Companies in The Conference Board compare their performance to benchmark averages through the Board’s Working Group on Global Corporate Citizenship and Risk Assessment.

“ Generally speaking, companies are always interested in where they are, and where they want to be,” observed Vidal of The Conference Board. “Yes, there is an array of codes and standards out there. Companies, by and large, are very interested in a self-assessment. There are so many complicating layers in unchartered areas such as governance, ethics, transparency and reporting. I believe governance is the apex of the pyramid. Execution, planning, customers and product are all key, but governance at the top sets the tone for the whole pipeline. The GC360 process makes the assumption that this area of inquiry is valid. The process really works like a surrogate stakeholder meeting,” he said.

GC360 consists of 209 criteria, drawn from 20 widely used standards of corporate governance, accountability, responsibility, sustainability and citizenship—terms that have distinct meanings but that are commonly used as synonyms. The criteria are converted into yes/no questions and embedded in a software tool that runs on any PC.

The GC360 data collection is conducted as a four-hour group process. Each company gathers together a core group of six or more executives from various departments, typically representing top executives, public affairs, human resources, operations, environmental affairs and communications. A facilitator leads the group through a questionnaire and a discussion process across a full range of citizenship issues. Executives discuss and debate their answers, until the group comes to a consensus. At the end of the half-day process, the GC360 prepares several deliverables that summarize the results and provide guidance for strategically addressing key issues. (See inset: GC360 Deliverables.)
“ Never before have all members of the Coca-Cola system come together to create a single global platform,” commented Cutshall, noting that the GC360 process was instrumental in accomplishing this task. “A number of factors converged to show us that the time is now for all members of our system to come together under the C@CC initiative.
C@CC has therefore been integrated into our global growth strategy—it isn’t an add-on. And you know what? It doesn’t cost any more to behave in a proper fashion than to do the wrong thing. In the grand scheme of things, the cost of C@CC was invisible,” he said.

Using the GC360 Results

At Coca-Cola, the results of the GC360 are used by both senior leadership and functional managers. “For the top folks, the GC360 communicates the benefits of various CSR activities to the business,” continued Cutshall. “But equally important is to get the functional managers involved, the people who actually do things ... you need buy-in from both directions. Not just the top or just the bottom, but from both.”

Not everyone can participate directly in the GC360 data collection and discussion session, however. To convey the findings, companies use what is called the Executive Report Card, which rates every business function using a classic A-to-F grading scale. “The robustness of the Report Card has been great for our bottling operations,” Cutshall said. “We have actually added a self-generated report to the process that addresses the reason for actions by each business unit. It is more or less an assessment summary for internal management use.”

At Coca-Cola, the GC360 is used to prepare both internal and external reports. “Our approach is a bit of a hybrid,” Cutshall said. “We can simplify the output and leverage it into the business planning process, report externally following the GRI format, or accommodate additional data requests.”

More important than the numbers, however, are the cross-departmental understanding and commitment that result from the process, Cutshall said. Over the course of about four hours, the assembled executives cover a comprehensive array of issues, and gain deeper understanding of the company’s strengths, weaknesses, opportunities and threats. That enables the team to outline a strategic plan that takes full advantage of the company’s strengths and opportunities, while reducing risks and flagging weaknesses for improvement.

The results of the process, including the Report Card, are owned by the local business units. Coca-Cola does not require its system members to report their performance to Atlanta. That helps insure against any incentive to inflate the results. However, each business unit is required to develop a strategic plan based on its findings, to report this to Atlanta, and to integrate it into its business plans. This way, corporate citizenship can be better embedded in the company’s operations.

The process is applied by The Coca-Cola Company, syrup and concentrate makers, and independent bottlers. While the suppliers to these entities have yet to participate directly in the GC360 process, Coca-Cola does leverage these results to help shape standards on environmental and social issues throughout their supply chain.

The Citizenship Pyramid

To transform the results of the GC360 process into changes in its actual operations, Coca-Cola has developed and refined a model that ties together the three core components of its citizenship system in a “Citizenship Pyramid.” The three-tiered pyramid was developed in 2004 to help the company organize its CSR activities more logically. It draws together what had been separate initiatives: measuring and reporting CSR performance; engaging with stakeholders on issues like sustainability; and demonstrating to private-sector leadership on key issues like water, HIV/AIDS and recycling. (See inset: Citizenship Pyramid.)

The Base: Performance

The base of the pyramid is “performance” because, as Cutshall pointed out, good performance is the foundation for trust and leadership. Good performance is achieved through programs, plans, management protocols and incentives that encourage and reward continuous improvement.

Performance criteria are selected on the basis of their materiality, defined as their relevance to stakeholders. Through the C@CC program, Coca-Cola assesses its performance across all criteria that are material for its stakeholders. These include criteria established formally by stakeholders and reflected in various standards, as well as additional criteria that Coca-Cola has developed on its own. The ideal is to “do things right,” whether or not doing so always leads to the perception of good performance. The company may sometimes be “caught in the act of doing good,” but publicity is not the objective here.

The criteria in the “performance” tier make up a relatively broad and comprehensive inventory of practices by Coca-Cola, and the raw material from which criteria may be selected for the “trust” and “leadership” tiers.

The Middle: Trust

The middle of the pyramid is “trust,” the confidence that stakeholders have in the company’s performance, based on the issues they care about most.

Coca-Cola seeks to build trust by communicating the company’s concern and performance on matters that are high priorities for its stakeholders. The idea here is to “do the right things”—i.e., to make progress in the areas that are most important to stakeholders.
Performance in these areas must be documented and communicated effectively. Sustainability reporting, communications and direct stakeholder engagement are all process by which these goals are accomplished.

Because this middle tier is driven by stakeholder signals, it is the place
where Coca-Cola links with, and cultivates trust and support from, independent third parties. Thus, Coca-Cola relies on this middle section for the credibility that leads to broad positive public perceptions. This section therefore provides the link between perception (reinforced by the leadership issues at the top) and performance (inventoried in the base).

The middle tier is the most dynamic, because it reflects the company’s interaction with its stakeholders. The company’s good practices (the base) will be updated as social needs and conditions change; the iconic, leadership initiatives at top are too central to be changed at a whim. But because the content of the middle tier reflects stakeholder priorities, the issues emphasized may shift more quickly.

The Top: Leadership

The top of the pyramid is “leadership”: iconic issues that reflect the “heart and soul” of the company, where the company can serve as a model for others. They reflect the essence of the brand, and align with the company’s assets, competencies, mission and business objectives. Specific issues for which Coca-Cola currently works to build a leadership position include water, sustainable packaging and HIV/AIDS programs.

Leadership initiatives are not necessarily larger or more expensive than those reflected only lower in the pyramid, but they are closely connected in the minds of employees and the public with the essence of the company. They require both sustained commitment and excellent results. Therefore, when Coca-Cola selects a leadership issue, it must commit significant time and resources.

Leadership initiatives must be selected and protected with the same level of commitment the company would apply to its lead global slogan or marketing campaign. These initiatives reinforce and build the public’s perception of what Coca-Cola is and stands for, so they must be selected very carefully. If they run contrary to Coca-Cola’s underlying nature, they either will not be believed by the public, or will create a false impression of the company, which could undermine the brand.

Leadership initiatives are absolutely dependent on the two tiers that support them. They rely on both trust and performance. If the company violates its own standards, it will be seen as hypocritical and the initiatives will be interpreted cynically as “window dressing” rather than a genuine expression of the company’s nature, placing the brand at risk.
Water is one example. Because activists are leveraging Coca-Cola’s brand to call attention to water shortages in India, any action that Coca-Cola takes to promote water efficiency and availability will be placed under intense scrutiny by activists, media and the public. To protect itself against criticism, the company’s water programs must be founded on solid performance and undertaken with respected third-party stakeholders. The strategy on water “must connect back to the bottom of the pyramid, to the people on the floors where the work actually gets done,” explained Cutshall.

Putting It into Practice

It is too early to tell whether Coca-Cola’s approach will have the desired effect among outside stakeholders. “There is a natural distrust of corporations among the media and public, and especially among activists,” says Bill Shireman, president of The Future 500, which created the GC360 process and adapted it for the C@CC program. “That won’t change overnight. It may take many months or years of solid CSR performance for companies to develop the stakeholder relationships and trust that will protect their brand names.”

Perhaps no other company risks as much as Coca-Cola when it comes to brand value. In today’s economy, when intangibles can swing the stock market or induce a product sale, Coca-Cola is hoping that corporate citizenship is a learning process that will really pay off. “We want to develop a virtuous, sustainable business cycle,” said Cutshall. “Because of our resources, scope and reach, we can then address broader needs of society in alignment with our mission as a private company.”

Peter Asmus is a freelance journalist based in Northern California. His articles have appeared in green@work, Business Ethics, the Journal of Corporate Environmental Strategy, and in a number of major newspapers and trade publications.

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