WORLD: A Responsible Balancing Act

To Chinese consumers, thehallmark of a socially responsible company is safe,
high-quality products. For Germans, it is secure employment. In South Africa,
what matters most is a company's contribution to social needs such as healthcare
and education.

Public expectations of companies are rising everywhere - but consumers' top
concerns vary substantially between countries and regions, according to a new
study by GlobeScan, an international opinion research company.

There are common threads: consumers in the US, France, Italy, Switzerland,
the Philippines and much of South America agree that the most important thing
a company must do if it wants to be regarded as socially responsible is to treat
employees fairly.

But the differences stand out - and they mean that multinationals cannot hope
to build public trust with a single global message that ignores specific concerns
in Canada or Chile, Italy or India.

"This is not an argument for cultural relativism, but rather for a careful
balance of global and local responsibility," says Lord Holme, chairman
of GlobeScan and a former director of Rio Tinto. "The principles and the
corporate commitment ought to be the same everywhere, otherwise you get straight
into double standards," he says.

"But you should very carefully consult with local communities (in order)
to make sure that, in applying universal principles, you are not minimising
what matters to them."

Time and again, Globe­Scan found that people in different countries
had a different perception of what constitutes good corporate responsibility.

In Turkey, the most important demonstration of corporate responsibility is
charitable donations. In Australia, Canada, Indonesia and the UK, respondents
most often mentioned environmental protection. In China, India and Russia, good
service and product quality were listed as crucial. "For Chinese people,
a company should first of all be honest and not deceive customers," says
Huixin Ke, GlobeScan's research partner in China.

"This applies particularly to the food and electronics industries. In
the past year, several food companies were exposed for not strictly following
national production standards." She suggests that these concerns will shift
over time. "With the development of the economy, Chinese people will expect
more and more of a good company in terms of CSR." Indeed, perceptions do
vary not only between countries but also within them, especially over time.
Today in Argentina, for example, consumers put job creation and fair treatment
of employees top of their list of expectations of big companies, reflecting
high unemployment and concern about poverty.

But back in the 1980s, when there was high inflation, their main concern was
that companies keep prices down, says Ricardo Hermelo of TNS Gallup Argentina,
GlobeScan's research partner in the country.

"The opinion that citizens have about what a firm should do to be considered
socially responsible is a dynamic perception related to the social agenda."

While consumers' expectations of companies have grown, their ratings of corporate
performance have fallen in the last four years. Even industries such as computers
and telecommunications, which have the highest ratings for social and environmental
performance, have slipped in the public's perception. Only banking and finance
has a slightly higher rating than two years ago.

In the minds of consumers, companies' responsibilities fall into two categories,
says GlobeScan's 2005 Corporate Social Responsibility Monitor.

First, there are "operational" responsibilities, which include product
safety, environmental protection, fair treatment of employees and ensuring an
ethical supply chain. More than 70 per cent of consumers in the 21 countries
surveyed by GlobeScan hold companies completely responsible for these. Operational
responsibilities are a matter of risk management: failure to fulfil them can
seriously damage a company's reputation.

Second, there are so-called "citizenship" responsibilities: solving
social problems, reducing the divide between rich and poor or tackling human
rights abuses. These are actions that companies do not have to undertake as
part of their normal business operations. Fewer than half of consumers hold
them fully responsible for these.

Companies that take on "citizenship" responsibilities can differentiate
themselves and boost their reputation. But there is a health warning: a company
that is tempted to pursue reputation enhancement at the expense of risk management
is wasting its time.

"Our findings show that the lack of CSR at the operational level cannot
be compensated for by more socially oriented citizenship activities," says
Chris Coulter, vice-president of Globe-Scan. "The public is more likely
to punish companies seen as performing poorly on the operational side than reward
companies that exceed their expectations on the citizenship side."

There is, however, a north-south divide. Consumers in South America and South
Africa, in particular, place greater emphasis on companies fulfilling social
responsibilities, while those in North America and Europe have very high expectations
in terms of product safety and the environment.

What lessons should companies draw from the research? Bob Langert, senior director
for corporate responsibility at McDonald's, one of the most global of all brands,
says that the findings are already being channelled to country managers "so
that they can get the pulse of what's important in their countries". He
is struck by the finding that consumers hold companies more responsible for
the things over which they have direct influence. In particular, he points to
high expectations about the way people are treated - both direct employees and
those further down the supply chain. Corporate responsibility and employee loyalty
are intimately linked, he notes. "Employees want to work for a company
that has these values."

McDonald's is one of a handful of global brands including Coca-Cola, Nestle
and PepsiCo, that have the dubious honour of being named by some respondents
as the most socially responsible company they can think of and by others as
the most irresponsible.

This can be explained by the fact that consumers fall into distinct categories.
According to GlobeScan's analysis, the biggest segment comprises "demanding
regulators", who tend to be female, low-income consumers in developing
countries. They have a good opinion of corporate social performance but also
strongly favour government regulation of companies. This category has been shrinking
since 2001.

"Inactive capitalists", the next biggest segment, tend to be high-earners,
male and employed by large companies.

They view industry favourably and are ethically inactive consumers and shareholders.
But they increasingly expect companies to meet their operational responsibilities.

Third in size, and growing since 2001, are "mainstream activists".
These, too, tend to be men on high incomes; they have the highest level of internet
access of any group. Unlike inactive capitalists, however, they are very critical
of business and are ethically active consumers and shareholders.

Executives attempting to get their heads around these different, and often
demanding, consumer groups face another big challenge: the scepticism that often
greets corporate communications about social and environmental initiatives.

The study finds that consumers in Brazil, China, Indonesia, the Philippines,
South Africa and the US are most receptive to the formal kinds of corporate
messages.

Scepticism remains high, however, in Mexico, Canada, Australia and Europe.
Globescan concludes: "Building trust and formulating more informal communication
strategies will be necessary to win over consumers in these markets."

Internal barriers are preventing leading companies from testing their belief
that they could derive value from innovation that meets environmental and social
needs, says a study by Arthur D. Little, the management consultants.

The survey of 40 international companies - including Dupont, HP, Procter &
Gamble, Sony and Vodafone - examines their approach to developing products or
processes that respond to economic, social and environmental pressures. The
report, entitled The Innovation High Ground, says social and environmental concerns
must be explicitly considered when setting strategy and designing products.
Few companies are doing either, let alone both.

BARRIERS STOPPING COMPANIES' SOCIALLY RESPONSIBLE INNOVATION

The main barriers include:

*A lack of understanding among strategists of the significance of social and
environmental trends.

*Internal and external scepticism, often coupled with a perception that these
activities involve much risk and uncertainty.

*An absence of business models, particularly for emerging markets.

*A tendency to use available capital for "more of the same" in new
markets rather than for new business models or services.

*An unwillingness to finance new projects, particularly at the bottom of the
business cycle.

Internal barriers are preventing leading companies from testing their belief
that they could derive value from innovation that meets environmental and social
needs, says a study by Arthur D Little, the management consultants.

The survey of 40 international companies - including Dupont, HP, Procter Gamble,
Sony and Vodafone - examinbes their approach to "sustainability-driven
innovation" - the development of products or processes that respond to
economic, social and environmental pressures.

An example cited in the study is France Telecom's "telepresence wall".
This technology, which seeks to address traffic congestion and pollution by
making it easier to telecommute, enables people to communicate as if they were
face-to-face, using life-like 3D images.

The report, entitled The Innovation High Ground, says that social and environmental
concerns must be explicitly considered when setting strategy and when designing
products. Few companies are doing either, let alone both.

Copyright 2005 The Financial Times Limited

• 183 Environment
• 187 Privatization