Activists in the Boardroom: How Advocacy Groups Seek to Shape Corporate Behavior

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Tom Price

Introduction by Douglas G. Pinkham President, Public Affairs Council Text.qxp 10/4/2006 1:27 PM Page 2

Introduction

To a job seeker, a corporation is a place to earn a living. To a shareholder, a corporation is a vehicle for investments. To a community, a corporation represents economic stability and a strong tax base.

But political activists are increasingly regarding corporations as instru- ments for improving the environment, protecting human rights, saving the rain forest and helping the poor. Instead of looking to government to solve problems, advocacy groups are either enlisting the help of companies to meet societal needs or pressuring them to use their market clout to support their causes.

Part of the reason for this shift is the sheer size of the world’s largest companies. According to the U.N. Conference on Trade and Development, at least 29 of the world’s top 100 economies are multinational corporations. Any organization as big as an industrialized nation is likely to have the capacity to change the world — or at least a corner of the world.

To be sure, even without pressure from activists, many firms have sponsored wide-ranging social responsibility programs. They have donated millions of dollars in grants and millions of hours in volunteer time in an Text.qxp 10/4/2006 1:27 PM Page 3

effort to assist the communities where they do business. Over the past 20 years, community involvement at these companies has evolved from “checkbook philanthropy” into a sustained effort to integrate corporate citizenship into overall business operations.

But the advent of the Internet fundamentally changed the way activists, shareholders, community leaders and others related to big corporations. Suddenly, the balance of power shifted and groups of like-minded individuals could generate enough noise to organize boycotts, advance shareholder resolutions, create outrage in the media and embarrass $100 billion multinationals. Companies who used to be proud of their size and influence have found themselves wishing they could lay low until the next storm had passed.

The result has been major changes in the ways companies try to manage their reputations and their relationships with employees, communities, shareholders and thought-leaders.

This report, Activists in the Boardroom, explores how activists organize company constituents, encourage socially responsible investing, push for codes of conduct, and oppose corporate behavior that they feel is detri- mental to society. The report also examines recent cases in which activists have pressured corporations to use their lobbying prowess to advance a particular social agenda — to the consternation of equally strong-willed activists with a different social agenda.

Our hope is that companies can use these case studies to learn how to anticipate challenges, manage their reputations, counter unfounded claims from opponents, and form effective partnerships. The successful corporation of the future will need proficiency in all of these areas.

This study is sponsored by the Foundation for Public Affairs, the research affiliate of the Public Affairs Council. The Council, a non- partisan and non-political organization, is the leading professional association for public affairs executives. Its 600 corporate and non-profit members work together to enhance the value and professionalism of the public affairs practice and provide thoughtful leadership as corporate citizens.

Douglas G. Pinkham President, Public Affairs Council Text.qxp 10/4/2006 1:27 PM Page 4

President Douglas G. Pinkham

Executive Director Brian P. Hawkinson

Design by Bonnie Heiston

The Foundation for Public Affairs conducts and supports research on important issues and emerging trends that affect the practice of public affairs and the ability of organizations to thrive in a dynamic business environment.

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Activists In The Boardroom: How Advocacy Groups Seek to Shape Corporate Behavior

Contents Introduction ...... 2 Activists in the Boardroom...... 7 Systematically Thinking Outside the Bun...... 10 Taking It to the Bank ...... 12 When Shareholders Measure Value in More Than Dollars ...... 14 When Advocates Collide ...... 18 Choosing Partnership over Conflict...... 22 The Power of Association ...... 26 Social Responsibility as Business Strategy ...... 30 No Room for Thinking in Silos ...... 34

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About the Author Tom Price has written three previous reports for the Foundation for Public Affairs: Creating a Digital Democracy: The Impact of the Internet on Public Policy Making, published in 1999; Cyber Activism: Advocacy Groups and the Internet, published in 2000; and Public Affairs Strategies in the Internet Age, published in 2002. Before becoming a full-time Washington-based freelance writer in 1996, Price worked for 20 years as a politics writer and Washington correspondent for Cox Newspapers. His most recent book, written with former U.S. Rep. and Ambassador Tony Hall, is Changing the Face of Hunger: One Man’s Story of How Liberals, Conservatives, Republicans, Democrats, and People of Faith are Joining Forces in a New Movement to Help the Hungry, the Poor, and the Oppressed (W Publishing Group, 2006).

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Activists in the Boardroom: How Advocacy Groups Seek to Shape Corporate Behavior

I n late winter 2005, about 80 tomato pickers boarded governmental organizations. In ever-rising numbers, buses in Immokalee, Florida for a journey to Louisville, activists are seeking to achieve their goals by taking Kentucky, headquarters city of Yum Brands, the world’s direct action against corporations, rather than by largest restaurant company. Along their thousand-mile lobbying lawmakers or government regulatory agencies. route, the farm workers stopped in 15 cities to stir up While these kinds of campaigns are not new, activists support for their three-year-old boycott of Taco Bell, one are launching them much more often than they did in the of Yum’s restaurant chains. This “Taco Bell Truth Tour” past. was to culminate in a protest rally in Louisville, which also happens to be headquarters city for the Presbyterian As Mari Margil of the Business Ethics Network, an Church U.S.A., a major boycott supporter. advocacy group coalition, said, “It is through corporate campaigns, not the political system, that we are seeing When the time for the March 12 rally rolled around, the greatest achievements for workers, and in protection however, the farm workers scratched the protest and of the environment and public health.”1 staged a celebration instead. Earlier in the week, Yum and the Coalition of Immokalee Workers, as the tomato Activists are developing innovative tactics and strate- pickers call themselves, had announced an agreement to gies to carry the campaigns out. And businesses end the boycott. are being forced to craft innovative responses of their own. The two sides had hammered out an inventive resolution to the farm workers’ campaign to increase their earnings, which the coalition said averaged less than “Pool-shot Activism” $8,000 a year. Even though the pickers worked for In the Taco Bell campaign, the farm growers, not Yum, the restaurant company agreed to pay workers practiced what some have the workers an additional penny per pound of tomatoes called “pool-shot activism.” The workers’ picked, an increase of 70 to 80 percent. ultimate target was the growers who employ them. Unable to win a traditional labor- “It is through corporate campaigns, not the management conflict with their employers, they directed their campaign against Taco Bell, hoping to pressure political system, that we are seeing the greatest Yum to pressure the growers to increase the workers’ pay. To pressure Yum, the workers sought support from achievements for workers, and in protection of the corporation’s most important constituents — its the environment and public health.” customers. In other types of campaigns: —Mari Margil, Business Ethics Network V Advocacy groups seek to influence their targets by or- ganizing other company constituents, such as employees, Shortly thereafter, the coalition asked McDonald's, shareholders or suppliers. These activists are often called Subway and Burger King to do the same. A year later, non-governmental organizations (NGOs) in political and having failed to reach agreement with those fast-food chains, the farm workers and their supporters launched a business circles. V new public campaign by riding buses from Immokalee to Charitable foundations, which used to concentrate on Chicago on the “McDonald's Truth Tour.” making grants, use their clout as large shareholders to influence corporate behavior — choosing to invest in Taking Direct Action companies whose policies they like, initiating or support- The Yum-farm worker conflict and resolution — and ing shareholder motions to change corporate policy, or the subsequent new conflicts — illustrate an important simply making their cases quietly in meetings with trend in the conduct of advocacy groups and other non- corporate executives.

Activists in the Boardroom —7 Text.qxp 10/4/2006 1:27 PM Page 8 V Turning 180 degrees from their traditional efforts to Those responses are not without controversy. Some influence governments in order to regulate business conservative critics contend that executives violate their behavior, activists pressure companies to join campaigns fiduciary responsibilities by spending corporate aimed at changing laws and government regulations. resources on anything other than maximizing shareholder value. Others argue that attempts to placate As a result, companies come open to attack on a large advocacy groups will fail in the long run because the number of fronts from both traditional adversaries and groups will always keep pushing for more. traditional friends. Because activist groups don’t always agree, companies can find themselves buffeted between competing groups of constituents. “The only organizations now capable of global This environment requires executives throughout a company to pay attention to a wider range of issues than thought and action — the ones who will they may have in the past, both inside their company and conduct the most important dialogues of the 21st across their industry. Public affairs executives must be prepared to deal with a wider range of issues in a larger century — are the multinational number of arenas. Other executives must be aware that almost any corporate decision could become a target of corporations and the NGOs.” advocacy group action and a topic of public interest. – Peter Sutherland, BP A growing number of companies report making effective responses to activist group threats by: This trend in advocacy group conduct has been driven

V by the triumph of capitalism and ascendancy of political Adopting corporate responsibility policies that conservatism in the United States, along with the growth address social issues. of multinational corporations and the advent of global V Working through industry associations to establish issues that seem too big for individual governments to voluntary codes of conduct that can reassure the public. handle. V Entering partnerships with advocacy groups to When Government Won’t Act develop policies that both sides find acceptable. Liberal activist groups have turned their attention to corporations in part because they haven’t been able to get the laws and regulations they want from the Republican- dominated Congress and White House.(“If you’re on the left, it’s been a frustrating couple of decades,” as George How Companies Become Targets Washington University Professor Jarol Manheim put it.) Many activists have come to believe that corporations are Advocacy groups target companies that the activists perceive to be vulnera- more adept at solving social and environmental problems ble or of high value in advancing the groups’ causes. than governments are — and that advocacy groups must assert global interests that individual governments don’t, A company appears vulnerable because: or can’t, address.

Q It has a well-known brand that it must protect from negative “Business has grown beyond the ability of states to public opinion. regulate,” said Phillip Rudolph, vice president of the Q It makes social responsibility a key part of its image. Ethical Leadership Group consulting firm and a former McDonald’s VP. “In the absence of regulatory relief, the Q It depends on customers, suppliers or other constituents void is being filled by other mechanisms.” that an activist group can influence. Q It has suffered from previous attacks that give a new Environmental activists who don’t deal with business attack instant credibility. “are just preaching to the choir,” Rainforest Action Network founder Randall Hayes said. “We can't depend A company has high target value because: on government regulation to solve our problems. If we Q It is one of the largest firms in its field, so a change in can't form an effective partnership with business, then I its policy would have a large impact. figure we will not get the job done.”2 Q It is a leader that other companies are likely to follow. In the words of Peter Sutherland, chairman of both BP Q It is an important constituent of another company that the and Goldman Sachs International: “The only organiza- activist group wants to influence. tions now capable of global thought and action — the

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ones who will conduct the most important dialogues of In addition, the Internet has given activists a powerful the 21st century — are the multinational corporations tool for launching their attacks, Argenti said. It was “ab- and the NGOs.”3 solutely essential” to the farm workers, coalition staff member Greg Asbed said. “On the Internet, you don’t At the same time, other social forces are putting have to have a lot of money to have a voice.” companies at greater risk when attacked by advocacy groups. Many business executives “don’t take NGOs seriously enough,” Argenti said. “They don’t realize how much “NGOs’ trust ratings keep going up and up, and the stock people put into them, don’t realize (businesses) are public’s trust of corporations keeps going down and in for more scrutiny than most organizations are subject down,” said Paul Argenti, professor of corporate commu- to.” nication at Dartmouth’s Tuck School of Business, who studies activist groups’ interactions with corporations. That, said international business consultant Robert An international survey by the Gallup Organization and Blood, “is like a corporation of the 1950s and ‘60s GlobeScan in 2002, for instance, found that 59 percent of ignoring trade unions.” respondents trusted NGOs to “operate in society’s best interests.” Just 42 percent trusted large national corporations and 39 percent trusted global corporations. 4 Capitalizing on a “Trust Void” Even among opinion leaders there is a growing “trust void” in attitudes toward business, government and media, according to the Edelman Worldwide consulting firm, which conducts an annual global survey on the topic. While trust in those institutions is declining Edelman said, U.S. opinion leaders’ trust in NGOs rose from 36 percent in 2001 to 55 percent in 2005. With the exception of China, NGOs are the most trusted institution in every nation Edelman surveyed. 5 Activists who seek to influence companies by attacking their brands “are definitely in a much more powerful position from a trust perspective than corporations are these days,” Argenti said. When a business’s trust level drops low enough, warned Michael Yaziji, founder of INSEAD’s Business and Society Forum, “the soundest solutions aren’t given a fair hearing.”6 And brands are more important than ever, as companies like Tyson Foods and Perdue Farms put brands on poultry and other products that once were viewed as commodities, while other firms seek to distinguish themselves through intangibles. Activists’ demands also resonate with a public that has come to believe businesses have a duty to society that goes beyond turning a profit. Her consulting firm’s research in 80 countries has found that “people feel they are constituents of the company,” APCO Worldwide President and CEO Margery Kraus said. “They believe the company’s license to do business is related to its benefit to society. Expectations are high that some portion of a company’s wealth needs to address things that are in the business’ interest but also benefit society — not just charitable donations, but also strategic involvement.”

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Systematically Thinking Outside the Bun

The Taco Bell boycott arose from the farm workers’ Blum recalled going to the growers from whom it inability to achieve their goals by employing traditional purchased tomatoes and saying: “We don’t know how labor tactics, Asbed explained. we found ourselves in the middle of your labor dispute, but we sure would appreciate it if you would solve it, Because farm workers are exempt from federal labor because our brand doesn’t want to be disparaged by your law protections, Asbed said, the coalition was unable to disputes.” The group’s response, he said, was: “If you obtain formal union recognition from the growers. don’t like it, go buy your tomatoes from somebody else.” Several strikes failed to win satisfactory concessions from the growers. So did attempts to rally public support for The farm workers targeted Yum in part because of its the farm workers’ with a hunger strike and a march. size, and Yum buys more than 10 million pounds of Florida tomatoes annually. But those purchases represent “The growers are insulated from consumer pressure less than one percent of the Florida market, Blum said, so because they don’t sell to the public,” Asbed said. “They the company didn’t have the clout to force the growers to sell wholesale to retailers who sell to the public.” change their policies. Searching for “some other way to influence their behavior,” he added, “we started to look at who their The farm workers’ boycott didn’t put a dent in Taco clients are.” Those clients turned out to be some of the Bell sales, which rose consistently throughout the world’s largest grocery and fast-food companies, who do dispute, Blum said. But the company didn’t like to be depend on the public’s good will to bring customers in vilified — not only by the farm workers but also by such the door. coalition allies as the Presbyterian Church, the National Council of Churches, Jimmy and Rosalyn Carter’s human “We started looking at these major companies as being rights organization, and the Robert F. Kennedy Memorial a possible force for change,” Asbed said. “If they can Center. Pickets in front of Taco Bell outlets, college leverage their purchasing power to demand low prices student demands that the restaurant be kicked off and certain kinds of produce, they can use that power to campus, hunger strikes, and protests in front of company demand better conditions for workers if their customers headquarters did not add up to the kind of image Yum demand it.” wanted to project. As Clark University Industrial Picking the Right Target Relations Professor Gary Chaison said, “The worst thing a company can do is to have its name associated with The farm workers decided Taco Bell would make a something like exploited labor.” 7 good target for a nationwide campaign because it buys tomatoes they pick and has “a national brand that is in Reaching an Accord every corner of this country,” Asbed said. The farm Blum visited Immokalee and concluded that the farm workers assumed Yum’s size would give it considerable workers lived in poverty and had a legitimate claim to clout with the growers. And they expected to find a sym- the penny-per-pound pay increase they were seeking. pathetic audience among the high school and college That raise would cost Yum about $110,000 a year — an students who comprise a significant portion of Taco Bell’s essentially irrelevant sum for a company that reported customers. more than $9.3 billion in earnings in 2005. But it would In targeting Taco Bell, the farm workers performed mean a 70 to 80 percent pay hike for the tomato pickers, what Manheim says has become a common advocacy who said they usually earned only about 1.25 to 1.4 cents group exercise — “power structure analysis.” It enables per pound. the groups to practice “systematic exploitation of stake- Yum offered to reimburse its suppliers for the increase, holder relationships,” by identifying points in the rela- but those growers refused, Blum said. Company tionships that are susceptible to pressure, then attacking attorneys advised against paying the farm workers there. directly, because they were not company employees. The coalition began to petition Yum in early 2000, Eventually, Yum found a somewhat convoluted resolu- Asbed said. Not satisfied with Yum’s response, the tion to the dilemma: Two growers consented to let Yum coalition started public protests in early 2001, then called funnel the extra pay to the workers through a third party. for a boycott that April 1. Yum also agreed to help the coalition lobby for Florida The company’s initial position was that “it’s somebody law changes that would upgrade farm workers’ employ- else’s labor dispute, and we’re not going to get involved,” ment conditions. Jonathan Blum, Yum’s senior vice president for public Shortly after achieving the Yum accord, the coalition affairs, recalled. “We really hoped the two parties would asked McDonald's, Subway and Burger King to make the resolve it.” When that didn’t happen, “they went from us same agreement. A year later, the farm workers launched as a third party to our customers as the fourth party!” a public campaign to bring pressure on McDonald’s.

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From Conflict to Partnership deems to be most humane. Noting that PETA’s ultimate goal is to end meat consumption, he said Yum is satisfied Blum and Asbed both say their conflict has transformed with its suppliers’ performance. into a partnership. “I think we have a very respectful and cooperative relationship,” Asbed said. “You bleed a little on both sides along the way,” Blum said, “and you get to the point where you’re blood brothers and you know you have a common cause. In our case, we have a genuine affection for these workers.” The two sides have a similar, though not identical, analysis of their experience and its lesson for others. Yum could have avoided the boycott by offering to help the farm workers much earlier, Asbed argued. “Once you get through the acrimony, from what we’ve seen, we can work together,” he said “There’s no reason we couldn’t have started to work together without the acrimony. “Organizations like ours learn that corporations tend not to respond to polite private requests for discussions about reform. It’s only when you start to make public noise that there’s response, which I think is counter-productive for both sides.” According to Blum, it took time for Yum to determine whether the farm workers’ grievances were legitimate, then more time to invent a solution.

“Once you get through the acrimony, from what we’ve seen, we can work together. There’s no reason we couldn’t have started to work together without the acrimony.” — Greg Asbed, Coalition of Immokalee Workers

“You never want to capitulate to a special interest group just to have them go away,” Blum said, “because that just opens the door to any other interest group that feels all they have to do is exert pressure on you to get their way. If we feel there’s no credence to allegations being made, we’re not going to roll over like Fluffy the dog. “In this instance, having gone down there and seen the poverty that is in the Immokalee region and understanding to the best I can the wage rates that they’re receiving, we over time came to appreciate their position and were sympathetic to it.” In contrast, Blum said, “we’re not going to capitulate” to People for the Ethical Treatment of Animals (PETA), which is asking food retailers to require that suppliers adopt a slaughter method that the animal rights group

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Taking It to the Bank

The Immokalee coalition’s strategy followed traditional than many nation states. As we see new policy at activism in using customers to influence suppliers. The Citigroup become integrated into their practices, what we Rainforest Action Network turns that tradition on its experience is the equivalent of a new law of the land in head. RAN’s “Global Finance Project” targets suppliers every country they operate in. There’s no political — in this case, giant investment banks — to influence achievement that could yield those results.” customers. RAN complained that the big banks were financing oil “What we’re seeing is the inability of legislative extraction, mining, logging and other business activities mechanisms to keep up with the reality of a without considering their effect on the environment. Especially in the Third World, the organization charged, globalized world.” the banks’ investments often trampled on the right of in- — Paul West, Rainforest Action Network digenous people.

A New Law of the Land As Duke University Political Science Professor Bruce RAN’s activists realized it would be daunting to target Jentleson put it, activists don’t face a “translation global financial empires such as Citigroup, Bank of process” when they enter an agreement with a corpora- America and JPMorgan Chase. But success could bring tion. “When Congress passes a law, then lawyers play enormous payoffs. And RAN had concluded that, in the with the law, it may end up a long way from your goal,” age of globalism, governments could not protect the envi- he said. ronment — both because large multinational corpora- “Even if you get government to do everything you tions have become so powerful and because many of the want it to do, you’re still more likely to achieve your most serious threats to the environment span interna- goals if you have some relationship with private sector tional borders or take place in countries with very weak actors.” governments. Companies also can act more quickly than governments “What we’re seeing is the inability of legislative mecha- once they understand the need to solve a problem, said nisms to keep up with the reality of a globalized world,” Ilyse Hogue, who runs the Global Finance Project. RAN Communications Director Paul West said. “Many of these corporations we’ve targeted are larger (financially) Making it Personal RAN set out to attack both the banks’ brands and the banks’ executives’ reputations. Finding the Pressure Points Movie stars Darryl Hannah and Susan Sarandon cut a television ad that called on viewers to stop using Once a company is targeted, an activist group identifies the points in Citigroup credit cards, for instance. The group organized the company’s stakeholder relationships where pressure can be applied school children to write letters to Sanford Weill, then the most effectively. It’s a case-by-case analysis that depends on the bank’s chief executive officer. specific circumstances of both the advocacy group and the company. Activists tacked up Old-West-style “wanted” posters The group may seek support from: near the Greenwich, Connecticut, home of JPMorgan Chase CEO William B. Harrison Jr. The posters identified Q EMPLOYEES: When they are sympathetic to the activist group’s Harrison as “Billy the Kid,” charged him with “reckless goals and are especially valuable to the company. Highly investment in environmentally and socially destructive skilled, hard-to-recruit workers are a prime target. projects in dozens of countries,” and urged his neighbors Q RETAIL CUSTOMERS: Especially in a highly competitive market in to “ask him to do the right thing.” Other posters attacked which goodwill exerts important influence on sales. the bank’s “investments of mass destruction.” RAN also Q CORPORATE CUSTOMERS: When the activist group believes it recruited Greenwich area school teachers to get children can influence the customers’ purchasing decisions. to make posters and take them to the bank’s Manhattan headquarters. Q SUPPLIERS: Especially in a sellers’ market, with relatively few suppliers and many purchasers. The banks responded quickly to RAN’s requests to Q SHAREHOLDERS: Especially when the group’s members own discuss investments and the environment, Hogue said. shares, the group itself owns shares, or large shareholders are But the environmental organization eventually concluded sympathetic to the group’s goals. that it couldn’t get significant action from the banks

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without the involvement of senior executives. That’s The bank’s environmental policy states that “working what the personal attacks on the executives — such as the to conserve and enhance the environment is a good Harrison wanted posters — were designed to achieve. business practice.” “What’s at play is no matter who your are — if you’re RAN quickly fired off letters to nine other banks, the CEO of a major bank or a government official or a asking them to follow Citigroup’s lead. In May 2004, logging executive — you are a human being first,” Hogue RAN and Bank of America jointly announced that bank’s said, “and you don’t want to do anything that you can’t new environmental policy. JPMorgan Chase unveiled a explain in good faith to your children and grandchildren. new environmental policy in April 2005 and Goldman Sachs in November. “One premise is we need to actually name names about who is responsible and is in a position to change Amy Davidsen, JPMorgan’s director of environmental things and then to offer them the opportunity to do so.” affairs, said its policy turned out to be “a good risk-management tool” that received “an extremely positive RAN’s key pitch to the banks was that their long-term response” from shareholders, customers and financial success depends upon them being good employees.” 8 stewards of the environment. “We no longer have the luxury of viewing the economy as something separate from a healthy global environment,” Hogue said. “If you want to live in a globalized world, you not only have a moral responsibility. You have self- interest in understanding that what you do thousands of miles away will come back to affect you. “CEOs have an enormous amount of influence to quickly change day-to-day business practices. When these institutions focus on the most pressing problems of our time, like climate change, I’ve been pretty excited by the creativity and innovation that pours forth.” Leveraging a Key Player RAN picked Citigroup as its first target because the organization perceived the bank to be a prominent player in areas the activists cared about, especially the Amazon, Africa and Southeast Asia. “We knew that if Citigroup could be convinced to look at the environment and shift its behavior, the rest of the market would take that very seriously,” West said. The campaign was launched in 2000 and culminated on Jan. 22, 2004, when RAN and the bank jointly announced a change in Citigroup policy. In the future, Citicorp lending decisions would take into account such environmental concerns as endangered ecosystems, illegal logging, sustainable development, climate change, renewable energy and sustainable forestry. “We believe we can make a difference by holding ourselves accountable for our own impact on the environment, by embedding our commitment to environmental responsibility in our lending practices, by embracing sustainable business opportunities, and by engaging in the public domain on these issues to help foster solutions to often very thorny questions,” Citigroup CEO Charles Prince said.

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When Shareholders Measure Value In More Than Dollars

I n announcing its new policy, JPMorgan Chase said it A report on the 2006 annual meetings season, had “carefully considered the viewpoints of various con- published by the As You Sow Foundation and stituents,” including RAN and such shareholders as Rockefeller Philanthropy Advisors, counted more than Christian Brothers Investment Services, Domini Social 300 proposals as of March 15. Investments, F&C Asset Management, Trillium Asset PETA illustrates the significant growth of shareholder Management and Friends of the Earth. In doing so, the activism. PETA — known to the general public primarily bank acknowledged not only RAN’s campaign but also for over-the-top demonstrations designed to promote another growing form of advocacy — shareholder animal welfare (throwing blood on corporate executives, activism. recruiting celebrities to pose nude in anti-fur campaigns) Christian Brothers, Domini, F&C and Trillium are — has become the most active advocacy group in the leading practitioners of so-called “socially responsible shareholder activism movement. investing,” known by the acronym SRI. Friends of the The organization filed 10 shareholder proposals in Earth has been a leading proponent of shareholder 2004, 24 in 2005 and 26 in the first two-and-a-half months activism by advocacy groups. of 2006, according to the Rockefeller/As-You-Sow report. Shareholder activism takes various forms. The motiva- Each year, that was more than any other advocacy group. tion can be strictly business — a hostile takeover, for PETA withdrew 11 of the 2006 proposals when food instance, or a move to change senior management on retailers agreed to meet with animal-welfare advocates to grounds a corporation isn’t producing sufficient profit. discuss adopting more humane slaughter methods. But an increasing number of individuals and institutions are wielding their stock holdings to achieve social goals. Committed to Shareholder Activism While most shareholder social activism has come from PETA signaled its commitment to shareholder activism the left, conservatives are entering the arena, sometimes by appointing a “corporate liaison” in 2005. PETA pinching companies between conflicting shareholder considers itself a pragmatic organization. David demands. Benjamin, the corporate liaison, said, “we understand the primary goal of corporations is the bottom line, increas- Growth in SRI ing shareholder wealth. We think they can achieve this SRI is practiced by investors whose criteria for invest- goal and treat animals humanely.” ment include social goals as well as business perform- PETA adopted the strategy because “it works,” ance. According to the Social Investment Forum, the SRI Benjamin said. The group can’t expect to gather much industry’s trade association, SRI assets grew slightly sympathy from a conservative federal government, he faster than the rest of the investment world from 1995 said. Boycotts and demonstrations are useful, traditional through 2005 — from $639 billion to almost $2.3 trillion. tools for activists, he said. “But it’s nice to be able to get That was a 258 percent increase, compared with 249 inside the house and speak to them on their own turf.” percent for all professionally managed assets. That put SRI investments at 9.4 percent of all professionally managed assets tracked in Nelson Information’s Directory of Investment Managers. About $700 billion of those assets are owned by activists who promote shareholder resolutions to advance their social goals — asking corporations to adopt practices that are more friendly to the environment, for instance. About $1.6 trillion are held by shareholders who make investment decisions according to a company’s impact on social matters — by refusing to invest in tobacco companies, for example. About $700 billion belong to shareholders who do both. Another $20 billion is applied to “community investing,” which refers to putting funds into areas underserved by traditional financial services institutions. Shareholder activists filed 348 resolutions on social and environmental issues in 2005, up from 299 two years earlier, the forum reported. Resolutions actually coming to a vote increased to 177 from 145 in that period.

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PETA introduces and promotes shareholder resolutions by taking advantage of shares owned by supporters or by purchasing some in the organization’s name. “Once you become a stockholder,” Benjamin said, “you can attend shareholders’ meetings where senior executives, senior members of the board, the media and analysts are all in the same room. It’s a way to get a dialogue going, to ask questions, engage the board, engage the CEO, educate other shareholders about what the issue is.” Activists don’t measure success by whether a proposal passes but by whether it attains enough votes to be offered again the next year and by whether a company changes policy after a resolution is introduced. age of votes at 2005’s annual meetings, led by discrimina- Most shareholder activism springs from the left. The tion protections for gays, which averaged better than 25- issues covered most often by shareholder proposals in percent support. The other top vote getters were 2006, according to the Rockefeller/As-You-Sow report, proposals dealing with equal employment opportunity in were corporate political contributions, labor standards, general, sustainability, prescription drugs, HIV/AIDS, toxics, labor standards, global warming, political contri- Activists don’t measure success by whether a butions and human rights. proposal passes but by whether it attains enough Conservatives Begin to Weigh In While conservative advocacy groups currently votes to be offered again the next year and by comprise a small number of shareholder activists, they’re whether a company changes policy after a resolution expanding their participation. Conservatives filed one proposal in 2005 to repeal a gay anti-discrimination is introduced. policy, and it received just 4 percent of the vote — less than a sixth of the support averaged by pro-gay-rights resolutions. global warming, sexual orientation discrimination, animal welfare, sustainable economics, toxic substances, Nevertheless, they came back with four such proposals natural resources, charitable giving and tobacco. in 2006 at American Express, Bank of America, Ford and Workers-rights proposals garnered the highest percent- JPMorgan Chase. The Rockefeller/As-You-Sow report counted 20 conservative resolutions in early 2006, including from groups opposed to abortion and illegal immi- Graph 1: Top 2006 Social Issues by Filings gration. 45 Conservative and liberal groups 40 found themselves on the same side of some issues, notably resolutions 35 requiring corporations to publish more 30 detailed information about their chari- 25 table giving. 20 15 Institutional Investors Dominate 10 Despite advocacy groups’ increased participation in shareholder activism, 5 large institutional investors dominate 0 the field. One investor consortium Tobacco Toxics alone — the Interfaith Center on Sustainability Corporate Responsibility — was Charitable GivingNatural Resources Animal WelfareSexual OrientationGlobal WarmingLabor Standards Political Contributions involved in two-thirds of the proposals counted in the Rockefeller/As-You- Source: Rockefeller Philanthropy Advisors/As You Sow Foundation, 2006 Sow report.

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The center does not own stock. Rather, its members — Mission-Related Investing 275 faith-related institutions with investment portfolios Nonprofits with endowments “have to decide if they worth $100 billion — cooperate in shareholder want the dollars they’re managing to have impact campaigns. Its members propose about 100 shareholder beyond the return on investment they use for opera- resolutions each year, usually involving such issues as tions,” he said. “A foundation can advocate policy that’s access to health care, corporate governance, the environ- good for the environment and improve shareholder value ment and human rights. at the same time.” Pension funds and labor unions also use their investments to try to influence corporate behavior. Foundations have not Graph 2: Top 2005 Social Votes by Issue been major players. But, like advocacy 30% groups, they are stepping up their partici- 25% pation, proposing about two dozen shareholder resolutions in early 2006. And 20% they’re being urged to become more 15% involved by the Rockefeller Philanthropy 10% Advisors and other activist-oriented 5% groups. 0% Doug Bauer, senior vice president of the Toxics EEO Rockefeller organization, argues that foun- HIV/AIDS Human Rights Sustainability dations don’t fulfill their potential if they Global WarmingLabor Standards Prescription Drugs Anti-sexual Bias Political Contributions fail to exercise the power latent in their portfolios. If a foundation that promotes Source: Rockefeller Philanthropy Advisors/As You Sow Foundation, 2006 environmental protection doesn’t attempt to influence the environmental policies of This so-called “mission-related investing” can include corporations in which it owns stock, it “misses a huge op- investing only in companies with policies compatible portunity to have a positive impact,” Bauer said. with the foundation’s mission, proposing and supporting “When you have companies with earnings and market shareholder resolutions to change company policy, and capitalization that outstrip developed countries’ GDPs, investing directly in ventures like low-income housing these companies have massive footprints,” Bauer said. development, Bauer said. “Corporations play a huge role in human rights in the de- “It can have good social impact and an above-average veloping world, in environmental policy or the lack expectation of return,” he said. thereof in the developing world. Those two issues alone Rockefeller and As You Sow have distributed more are important reasons for shareholders to voice their than 10,000 copies of a how-to primer on shareholder concerns.” activism titled “Unlocking the Power of the Proxy: How Active Foundation Proxy Voting Can Protect Endowments and Boost Philanthropic Missions.” It’s also available on line. 9 Friends of the Earth has posted an online handbook called “Confronting Companies Using Shareholder Power: A Handbook on Socially-Oriented Shareholder Activism.” 10 The Friends of the Earth handbook stresses that it is for investors who “have long-term commitment to social issues and who are committed to using shareholder activism tools in a prudent and responsible manner.” Similarly, Bauer said he is “not for drive-by shareholder activism,” which he defines as “buying 100 shares to stir up trouble.” Effective shareholder activism, “takes some time,” he said. “It’s like three yards and a cloud of dust. You can’t file a resolution once. You’ve got to stay involved.”

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Foundations are ideally suited for that task, he said, The fund has opposed corporate policies to reduce because they “tend to be long-term, value-driven holders emission of greenhouse gases, to tie investment decisions of stock. They care about the long-term impact and prof- to environmental concerns, and to make charitable contri- itability of the company. They also happen to be mission- butions that don’t have a clearly articulated business driven institutions.” purpose, for instance. One of Rockefeller Philanthropy Advisors’ long-term “We think that businesses play an important role in projects has drawn together 211 institutional investors society in creating wealth, providing jobs, providing with more than $31 trillion in assets to promote action on benefits to employees, spurring technological innovation global warming. 11 Each year, the investors ask companies and meeting consumer needs,” Milloy said. “Businesses to publish information about their impact on greenhouse are not backup governments. Businesses are not charities. gas emissions. The Feb. 1, 2006, letter went to nearly 200 They are best off operating in behalf of shareholders, not companies and was signed by a wide variety of investors, activists.” such as the California Public Employees' Retirement The fund manages about $5.6 million in assets and has System, the Calvert Group, the Central Finance Board of fewer than 100 investors, Milloy said. Opened on March 1, the Methodist Church, Credit Suisse, and Merrill Lynch 2005, the fund returned 2.32 percent as of Dec. 31, about Investment Managers. half the S&P 500 return of 4.72 percent. Pushing Back “We’re going to trail the S&P 500 for a while,” Milloy said. “Startup costs are high. Regulatory obstacles are Conservative pro-business activists Steve Milloy and enormous. We’re a small fund, so expenses are higher. Tom Borelli didn’t like the left-wing slant they perceived in the socially responsible investing movement. So they “Our investors are fully aware of what we’re doing. decided to field a right-leaning counterpart. The result: They feel that the ideological return is making up for the Free Enterprise Action Fund, a mutual fund that seeks whatever we’re trailing the market by.” to provide a market-tracking financial return while “defending free enterprise from the left’s use of capitalism against capitalism.” “The activist groups on the left have given up on the political system, so they’ve gone to the corporations,” Milloy said. “Publicly owned corporations are the new social/cultural/political battleground, and we’re the first investment group to push back from the pro-free-enterprise, pro-free-market side.” Milloy — like Borelli, a founder and portfolio manager for the fund — said the fund is pushing back “just like the other side, through shareholder advocacy.” The fund’s “Publicly owned corporations are the new social/cultural/political battleground...” — Steve Miller, Pro-business activist

resources are small, so it doesn’t wield the financial clout of the large liberal-oriented SRI funds like Domini Social Investments, or the $31-trillion anti-global-warming alliance. But it does follow in the footsteps of its left-leaning rivals — such as People for the Ethical Treatment of Animals or the Sierra Club — by introducing shareholder resolutions, participating in annual meeting debates and communicating directly with corporate executives.

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When Advocates Collide

A ctivists’ growing efforts to influence corporate Moran insisted that the change in advertising strategy behavior are forcing companies to sort through conflict- was “made for business reasons” and had nothing to do ing demands from various constituents. with the AFA boycott. 15 But gay organizations immediately expressed outrage, subjecting Ford to attacks from In addition to competing shareholder resolutions on the other side of the issue. Now the company had to sort gay rights, abortion and immigration, companies through the opinions of dealers and conflicting groups of confront pressure from competing groups of customers, retail customers. employees and business partners. Some of the conflicts occur when activists reverse their traditional strategies of Leaders of 17 gay groups released a statement saying pressuring governments to enact business regulations, they were “deeply dismayed” at the action by Ford, and instead pressure companies to take positions on which had received perfect scores for 2004 and 2005 in public issues that are before government bodies. the Human Rights Campaign’s annual evaluation of corporate policies toward gay employees, investors and Among demands made on Ford Motor Co. by the consumers. They demanded their own meeting with American Family Association (AFA), a conservative company executives, and it was held Dec. 13, 2005. The Christian organization, were that the automaker stop next day, Ford Vice President Joe Laymon wrote a letter contributing to groups that promote civil unions or same- to leaders of seven gay rights organizations to “reaffirm sex marriage. Microsoft and Nike both were pressured by our principles of nondiscrimination and inclusiveness.” advocacy groups supporting and opposing gay-rights legislation in the state legislatures of Washington and Ford would continue to support certain gay events, Oregon, where the companies have their corporate head- Laymon wrote, and would maintain “all of our quarters. workplace policies” that protect gay employees. Laymon insisted that the cancellation of Jaguar and Land Rover AFA launched its campaign in spring 2005, calling for a ads in gay media was “a business decision,” but acknowl- Ford boycott unless the company stopped advertising in edged the “clear misperception about our intent.” In gay-oriented publications and withdrew support from order to “remove any ambiguity about Ford’s desire to homosexual organizations and events, such as gay pride advertise to all important audiences,” he wrote, the days. The association, which claims nearly 3 million company had decided to advertise all Ford vehicle members, said 110,000 of its supporters signed pledges brands in the publications that Jaguar and Land Rover not to purchase Ford products if the company didn’t had planned to abandon. change its ways. At the request of some worried Ford dealers, AFA agreed to put off the boycott for six months and entered discussions with company officials in an attempt to resolve the conflict. “I am a dealer and I am the one who is going to get the brunt of the boycott,” Texan Jerry Reynolds said he told the association after receiving phone calls about the campaign from customers. 12 AFA founder and Chairman Donald E. Wildmon described the dealers as “basically our kind of people who share many of our concerns.” 13 Reynolds said he shared the AFA’s belief in “family values.” 14 When Satisfying One Stakeholder Group Outrages Another In late November, AFA announced it was calling off the boycott because Ford was addressing its concerns. And Ford seemed to confirm that when company spokesman Mike Moran told news media that only the corporation’s The action repaired Ford’s historically friendly relations Volvo brand would advertise in gay-oriented publica- with gay organizations but earned cries of betrayal from tions in the future. Jaguar and Land Rover would cease the Christian right. such advertising, he said. Ford, Mercury and Lincoln hadn’t advertised in gay publications in the first place, he “We had an agreement with Ford, worked out in good added. faith,” Wildmon complained. “Unfortunately, some Ford

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Motor Co. officials made the decision to violate the good Ballmer denied Hutcherson was behind Microsoft’s faith agreement.” In January, Wildmon and 43 other con- shift to neutrality and added that he and Microsoft servative activists — including leaders of such prominent Chairman Bill Gates “personally support” the legislation. groups as the Family Research Council, Focus on the Family and Concerned Women for America — wrote to When to Take a Position? Ford Chairman Bill Ford, demanding that the company “We are thinking hard about what is the right balance adhere to that agreement. When Ford failed to reverse to strike — when should a public company take a itself yet again, AFA called for the boycott to resume. position on a broader social issue, and when should it In the middle of the controversy, the company told not?” Ballmer wrote in an e-mail to Microsoft employees Ford Gay, Lesbian or Bisexual Employees, a Ford on April 22. “What message does the company taking a employees' organization, that it wanted to “avoid politi- position send to its employees who have strongly-held cally and socially charged debates, which can only beliefs on the opposite side of the issue? distract from our primary purpose — to design, manufac- “It's appropriate to invoke the company's name on 16 ture and sell the best vehicles we can.” Clearly it failed issues of public policy that directly affect our business to do so, as did Microsoft in similar circumstance during and our shareholders, but it's much less clear when it's the same time period. appropriate to invoke the company's name on broader issues that go far beyond the software industry — and on “It’s appropriate to invoke the company’s name on which our employees and shareholders hold widely divergent opinions.” issues of public policy that directly affect our The explanation did not quell the uproar, however, and business and our shareholders, but it’s much less the company soon was backtracking toward its earlier support for the legislation. clear when it’s appropriate to invoke the company’s On April 25 Gates said he was surprised by the extent name on broader issues that go far beyond the... of the reaction. “We didn't realize that one would get that level of scrutiny,” he said, “but there's people who care a industry — and on which our employees and lot. We certainly have a lot of employees who sent us mail. Next time it comes around, that'll be a major factor shareholders hold widely divergent opinions.” for us to take into consideration.” 17 — Steve Bullmer, Microsoft By May 6, the company had done a complete about- face, with Ballmer sending another e-mail to employees, this time announcing that Microsoft would support the Like Ford, the software giant was known as a gay- state legislation in the future and would push as well for friendly enterprise. Microsoft had even stepped into the federal legislation to prohibit employment discrimination political arena to endorse gay rights legislation in the on the basis of sexual orientation. Washington state legislature during 2003 and 2004. In Employee opinion was a key reason. “I’ve concluded April 2005, however, Microsoft CEO Steve Ballmer said that diversity in the workplace is such an important issue the company was going to become neutral on the legisla- for our business that it should be included in our legislation, which would have banned discrimination against tive agenda,” he wrote. gays in housing, employment and other areas. The company decided it should concentrate its lobbying With Microsoft’s support, the legislation became law in efforts on issues more clearly related to its business early 2006. interests, Ballmer said. Avoiding Flip-Flopping As in the Ford case, gay activists — including many Microsoft employees — objected. They expressed particu- Much of the conflict that shook Ford and Microsoft lar outrage over the claim by Ken Hutcherson, conserva- stemmed from perceptions that the companies flip- tive pastor of a 3,500-member church in Microsoft’s flopped — abandoning their traditional support for gay hometown of Redmond, Washington, that the company rights under pressure from conservative religious changed its position because of his threat to organize a activists, then re-embracing those rights under counter nationwide boycott against Microsoft products. The pressure from gay groups. anger intensified when the Washington state Senate That not only angers the combatants, but also plays defeated the bill by one vote on April 21, after it had pre- poorly with the general public, said Jonathan Doh, viously passed the House. assistant professor in the Villanova University

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Management Department and head of the university’s same-sex couples many of the legal rights enjoyed by Center for Responsible Leadership and Governance. married heterosexual couples, and prohibit discrimina- “If corporations are seen as bowing to the latest bit of tion based on sexual orientation in housing, employment pressure, they undermine their reputation and their cred- and public services. Nike found a “business nexus” in the ibility with all their stakeholders,” he said. “Nobody likes proposals because they would benefit the company’s gay a company that appears to be just opportunistic and cal- employees, who already receive equal access to company culating in its relationships, and not concerned with benefits, Figel said. maintaining some sense of consistency and continuity. “Many of our employees’ lives will be better because of Microsoft and Ford appeared to be vacillating, trying to the passage of these bills,” Wes Coleman, Nike vice please everybody, trying to be responsive to all these president of global human resources, wrote to Oregon 18 different pressures, when that’s not possible.” lawmakers. Nike did not see a business case for endorsing gay marriage, however, Figel said. Finding a Business Nexus Nike applied the same criteria to evaluating the gay Confronting an issue similar to Microsoft’s at about the rights legislation as it does to other public policy issues, same time, Nike endorsed gay rights legislation in Figel said: “Does it have a tangible business nexus? Will Oregon in 2005 and stuck with that position despite it position Nike favorably on key business objectives? attacks from religious conservatives. The key to navigat- Will it enhance any of our stakeholder relationships? Do ing these conflicts is carefully thinking out the position in the benefits of weighing in outweigh the risk?” the first place, then sticking with it, according to Brad There’s no point in trying to keep everyone happy, Figel, Nike’s global director of government relations and Figel said, because, “on most public policy positions, public affairs. when you weigh in on one side, you’re usually offending Encouraged by gay employees, Nike decided to someone else. You have to identify the risk of who you’re support legislation that would legalize civil unions, grant offending.” Cyber Activism One thing activists of all stripes agree on: The Internet is as valuable in their efforts to change corporate behavior as it is in their campaigns to influence public policy. Because of the Internet, activists’ effectiveness has “changed from darkness to daylight,” in the words of American Family Association Chairman Donald Wildmon, whose organization often campaigns against gay rights. It was “critical” to gay rights groups’ successful efforts to convince Microsoft to support gay rights legislation in Washington state, said Dan Kully, a spokesman for Equal Rights Washington, whose group tangled with Wildmon’s in that conflict. “The Internet was absolutely essential,” to the Coalition of Immokalee Workers’ campaign for a pay raise in the Florida tomato fields, coalition staffer Greg Asbed said. “It’s a democratizing medium,” he said, because it can be used effectively at little cost. Just about every activist group maintains a Web site where it can communicate its views to anyone who stops by. Most also use e-mail to energize and organize supporters, as well as to raise funds. Groups form alliances and promote each other’s cause on each other’s Web site. Activists bombard corporate executives with e-mail appeals. Blogs — online journals — have emerged as the latest online tool, often read by practically no one but sometimes attracting a significant audience. “For 25 years or so we operated by direct mail, and it took six weeks to get a mail piece out,” Wildmon said. “Now we can get to 3 million people in, say, eight hours, and we can document everything we say. We can give phone numbers and addresses and everything.” Kully said blogs played a crucial role in the Microsoft battle, providing a link between the activists and the mainstream media that monitored blogs’ content. “As a source, we were clearly perceived to have one point of view,” he said. “But the blogs told the story independent of us, and the mass media saw that as a more legitimate source.” People for the Ethical Treatment of Animals produces a dedicated Web site for nearly all of its campaigns. Rockefeller Philanthropy Advisors and the As You Sow Foundation jointly posted a “how-to” primer for shareholder activism, as has Friends of the Earth. “The Internet and other global communications have allowed NGOs to organize in ways they couldn’t have before,” business consultant Margery Kraus said. “The balance of power between the business sector, which always had a lot of resources, and the NGOs, which didn’t, has been aligned because the technology is a leveler.”

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Figel recalled Nike supporting regulations to keep hour news cycle, Microsoft was under attack. Each and roads out of wilderness areas despite opposition from every day, a new organization was working with the Oregon timber companies. One timber executive press, getting out a new statement suggesting Microsoft responded by saying that “if there was a Nike executive needed to reverse its decision. It shows that if you’re lying on the side of the road, close to death, he wouldn’t efficient and nimble, and if you have the facts on your stop to spit on him,” Figel said. But Nike sees a business side, then you can put a company as big and successful as nexus in supporting environmental protection because of Microsoft on the defensive. It’s hard to imagine, if this the products it sells for use in outdoor recreation. had been only a one- or two-day story, that we would have had the success we did.” “[On] most public policy positions, when you weigh The gay activists eventually prevailed at Ford and in on one side, you’re usually offending someone Microsoft, as well as Nike, because “corporate America is rapidly moving toward equal treatment and equal else. You have to identify the risk of who you’re benefits for its gay and lesbian employees and is also offending.” seeking the gay dollar from consumers,” Herrschaft said. According to Peter LaBarbera, executive director of the — Brad Figel, Nike conservative Illinois Family Institute, that’s happened at least in part because “the gay side is miles ahead of us” in “We took some grief” for supporting the gay rights leg- engaging corporations. “They were smart enough to go at islation, Figel said. “Our CEO got hammered with several it early and make their focus not just on politics, which is thousand e-mails within an hour.” The American Family a clear mistake of my side which focused more on Association, which led the campaign against Ford and Washington and not as much on the cultural aspects,” participated in the attack on Microsoft, generated more LaBarbera said.19 than 100,000 e-mails to Nike. Making a Business Case Being Consistent Gay activists are convincing companies that promoting “We just stood our ground,” Figel said. “We just gay rights is good business, Herrschaft said, not just believed that taking this position and taking the heat was within the corporation but in the political arena as well. consistent with our culture and our values, and it was worth the risk. By and large, once you explain what you “It’s easy to make the case that being a company in a did and why you’re doing it, in most cases people under- state that welcomes all individuals — that protects stand.” workers from discrimination — is good for business, because that makes it more likely that good people are Figel said it also helps to be transparent, notifying even going to come to work in your state and make your potential critics of what the company might do. “It helps workforce more productive,” he said. Conversely, he you formulate your position and identify the upside and said, without national anti-discrimination laws, a downside to it,” he said. company with nationwide operations will find it harder While Nike listens to stakeholders, especially to recruit and manage employees who won’t want to re- employees, it’s difficult to base political positions on linquish rights when they’re transferred between states. customer opinion because Nike’s customer base is so Companies can expect continued vigilance from gay diverse, he said. customers and employees, Herrschaft said. Winning and preserving workplace rights are essential ingredients in Impact of the Internet gay activists’ long-term quest for full equality, he Just as the American Family Association and other con- explained. servative groups used the Internet to organize their sup- “We look at this work as part of a broad cultural porters and flood the companies with e-mails, gay change,” he said. Employees of gay-friendly companies, activists employed the Internet to advance their position. “go to work in a place that tells them gay and lesbian Blogs were crucial in exposing the Microsoft situation workers and their families deserve equal opportunity, and holding the company’s feet to the fire, said Dan equal benefits and equal respect. They get to know Kully of Equal Rights Washington, a Washington state someone who is gay and who is comfortable coming out. gay rights group. And we know the single biggest factor in a person’s Local and national news media quickly picked up the support for gay and lesbian civil rights is whether or not story, Kully said, so that “each and every day, for the 24- they know someone who is gay.”

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Choosing Partnership over Conflict

A growing number of companies are finding they can “We want to change the world. If we can get big reduce conflict with activist groups by entering partner- movement from a corporate partnership, that’s great. If ships with them. it’s through traditional advocacy, that’s great, too.” The phenomenon is significant enough for Environmental Defense’s focus has evolved from gov- Environmental Defense (ED) to have established a ernment regulation of “what comes out of the waste director of corporate partnerships. By offering itself as an pipe” to helping businesses “prevent it from getting into expert consultant on environmental issues, the organiza- the pipe in the first place,” she said. tion has persuaded some of the largest corporations in Companies seem to feel comfortable working with the the world to adopt more environment-friendly practices. organization, she said, because “we’re not as confronta- For more than a decade, ED has worked with tional as some other groups” — although she quickly McDonald’s to reduce waste in packaging, expand added that “I’m glad there are lots of groups using lots of recycling and shift to packaging made from renewable different methods, because we need every kind of resources. The environmental organization works with approach.” Compass Group, the world’s largest food service Companies are learning that ED’s suggestions can cut company, to reduce the use of antibiotics by livestock costs as well as protect the environment, she said. FedEx producers. It helped FedEx introduce a hybrid delivery estimates, for instance, that its new truck will reduce fuel truck that is expected to reduce particulate emissions by expenses by more than a third. With ED’s help, UPS 96 percent and smog-causing emissions by 65 percent. developed a lighter, reusable envelope for businesses Other ED partners include UPS, DuPont, Smithfield engaged in back-and-forth communications; UPS said it Foods, Citigroup, SC Johnson and Starbucks. purchases fewer envelopes because they can be used more than once and expends less energy to transport An Evolving Approach them because they weigh less. DuPont reported saving “We’re very focused on results,” Gwen Ruta, ED’s more than $2 billion by adopting energy-conservation corporate partnership director, said in explaining the or- measures with ED’s assistance. ganization’s willingness to cooperate with businesses. Finding Grounds for Cooperation Just as corporate executives have discovered they can cooperate with environmental groups, Ruta said, activists Finding Promising Partners have recognized that “a company’s goal is not to wreck the Earth – their goal is to do their business.” Like other Business executives need to ask these questions when considering activists who collaborate with companies, she has found whether a prospective partnership would be worthwhile and likely to that corporate employees often are “thrilled to be succeed: working with projects like this because they feel good about it.” V Does the group pose a credible threat to the company? Ruta said ED functions as a “catalyst.” In the FedEx V Has the group raised an issue that appears to have merit? case, she explained, “we contacted them and asked if we

V could talk about trucks and they were thinking about Has the group expressed willingness to compromise in order to form what’s next with trucks so they were ready to hear our a partnership? ideas.” ED believed technology existed to substantially

V reduce truck emissions but the trucking industry was not Does the group have a history of working cooperatively with corpo- aware of it, she said. rations? “By setting some aggressive goals around emissions, V Are the group’s ultimate goals compatible with or fundamentally in fuel economy, reliability, price and schedule,” Ruta said, conflict with the company’s core business? FedEx and ED “basically set up this competitive process

V to get the attention of the truck supply communities. And Are the group’s goals and practices compatible with the company’s it worked.” Eaton Corp. won the competition, and FedEx core values? began using the OptiFleet E700 diesel-electric hybrid in V Could the company more effectively address the issue raised by the 2004. group without forming a partnership? “We look to work with the leaders and leverage their

V purchasing power in the marketplace,” Ruta said. “Our Could the company address the issue by partnering with an alterna- model is to work with one company and then try to tive, more compatible group? replicate it.”

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Such partnering is “definitely” on the rise, Argenti said, pounds in 2001, when it started working with TransFair, but it’s not yet widespread. For many corporate execu- to 11.5 million pounds in 2005. That’s 21 percent of all tives, “it just seems weird,” he said. “They don’t know Fair Trade coffee imported into the United States and 10 what to make of it. Perceptive executives recognize part- percent of the global Fair Trade market. And the nering as a means to terminate or avoid conflict and as a company announced plans to buy at least 12 million tool for promoting their brands, he said. pounds in 2006. “I would argue,” Doh said, “that, if a company has credibility in the NGO sector through one of these rela- “Perceptive executives recognize partnering as a tionships, it’s less likely to become a target.” means to terminate or avoid conflict and as a It Doesn’t Always Work Out tool for promoting their brands.” First a company has to distinguish between activists — Paul Argenti, Dartmouth University who can be worked with and those who can’t. Both Yum and the Coalition of Immokalee Workers say When It’s Still Not Enough their conflict transformed into an amicable partnership, for instance. But years of on-again, off-again conflicts and Still, it’s the target of campaigns by such activist groups discussions between Yum and People for the Ethical as Global Exchange, which promotes Fair Trade coffee, Treatment of Animals ended with both sides accusing the and the Organic Consumers Association, which promotes other of acting in bad faith. Starbucks finds itself simulta- organic as well as Fair Trade products. Global Exchange neously cooperating with some NGOs while being criti- wants Starbucks to get at least 5 percent of its coffee from cized by others for not doing enough. Fair Trade suppliers, up from the current 3.7 percent. In purchasing some of its coffee beans, Starbucks works Starbucks has clashed with Global Exchange since 2000, with Conservation International and TransFair USA, or- according to Argenti, who has studied the coffee ganizations that promote environmentally friendly agri- company’s relations with NGOs. The company had begun working with Conservation International in 1999 and had entered discussions with TransFair later that “We look to work with the leaders and leverage year when Global Exchange staged a protest at a San their purchasing power in the marketplace. Our Francisco Starbucks in early 2000, then showed up at the corporation’s annual meeting to ask why the company model is to work with one company and then try wouldn’t use Fair Trade coffee. to replicate it.” Because of the activist group’s earlier effective campaign against Nike, Starbucks executives knew the — Gwen Ruta, Environmental Defense organization posed a real threat, Argenti said. They did not want to appear to capitulate, however, for fear other culture along with higher earnings and better living organizations would perceive Starbucks as an easy mark standards for farmers. With Conservation International, for protests on other issues. Cost was not a significant Starbucks developed “socially responsible coffee buying factor, because the company already paid a premium for guidelines,” which it calls “CAFE Practices” (for “Coffee superior beans. But the company was concerned about and Farmer Equity Practices”). It also purchases coffee the quality of Fair Trade products. that TransFair certifies as meeting “Fair Trade” standards for environmental protection as well as farmers’ income Sticking to Core Values and working conditions. High quality coffee and social responsibility both are Starbucks bought 76.8 million pounds of CAFE coffee key attributes of the Starbucks brand, Argenti said. The in 2005 and announced plans to double that total in 2006. company tried to serve both values by agreeing to use Its Fair Trade purchases have skyrocketed from 653,000 Fair Trade coffee for one year and then evaluate. After

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Keys to Successful Partnerships Activists and corporate executives agree that successful partnerships the year, the company decided to try to increase the require businesses and advocacy groups to truly want to work amount of Fair Trade coffee that it purchases. In 2002 it together, to try to understand each other’s point of view, and to be entered a partnership with Oxfam America and the Ford willing to compromise. Foundation to help small-scale Mexican farmers increase their production of high-quality Fair Trade coffee. In To increase the likelihood of success, businesses also should: 2004, the U.S. government’s Agency for International Development joined Starbucks’ partnership with KNOW THE OTHER SIDE: Businesses that monitor advocacy Conservation International. group activity and communicate with groups regularly can spot part- Successful corporate-NGO partnerships require both nership opportunities before conflict breaks out. sides to truly want change and to be willing to compro- ACT QUICKLY: Meeting with some activists at the first sign of unrest mise, Argenti said. “The NGO has to understand how can nip protest before it grows large. difficult it is to do business and that you can’t create change overnight,” he said. “The company has to really COOPERATE, NOT CAPITULATE: A business that succumbs to be willing to cooperate with the NGO, not just be playing activist pressure without good reason invites attack from others who a game.” sense an easy mark. A business that works with sincerity to solve a Doh said companies must make a “commitment from real problem builds respect and reduces the likelihood of attack. the top, or the senior ranks of management, so it’s not BUILD FROM THE TOP: Committed support from senior manage- viewed as just throwing a bone at an NGO to get it out of ment increases the likelihood a company will be able to do whatever is your hair.” He said partnerships are likely to be most effective when they are related to the core business oper- necessary to make a partnership work. ations or consistent with the core values of the company. CHOOSE PARTNERS CAREFULLY: Many activist groups are pragmatic, are willing to learn the realities of running a business, and Dropping Prejudices will compromise to attain a mutual goal. There’s no point trying to Building trust in the partnership is essential, but also partner with a group that doesn’t display those traits. challenging, because it’s likely “the two entities come into it with a background of mistrust,” Doh said. CONSIDER A POTENTIAL PARTNER’S REPUTATION: Partnering with a widely respected NGO can enhance a company’s All sides need to “drop their prejudices,” Bauer said. reputation and diminish the credibility of activist groups that attack. “When you get past those things, you find people want to do the right thing, to do what’s pragmatic, to have an TAP COMPANY EXPERTISE: A partnership is more likely to impact. I’ve seen, time and time again, people get succeed when a company knows what it’s doing rather than when it together in one room and, over the course of a couple of ventures into uncharted waters. A company’s contribution to a part- conversations, they find there’s more common ground nership can range from donating products to changing operating than not.” practices in response to a partner’s advice. Yaziji said a company should initiate contact with an NGO at “first signs of disagreement . . . whether it be a EXPAND COMPANY EXPERTISE: Some partnerships enable busi- letter to the editor, a petition, or a picket line. Even better, nesses to profit from the expert knowledge of advocacy group staff. companies should learn the concerns of the NGOs that For example, a company may cut operating costs while enhancing its follow their industry and sound them out while a poten- environmental image by reducing waste with the help of environmen- tially controversial project is still on the drawing tal group experts. board.” 20 FIND BUSINESS VALUE IN PARTNERSHIPS: Partnership with a In addition to warding off conflict, the contact could produce information that enables the company to operate respected NGO may increase a company’s sales, both to the organiza- more effectively, he said. Shell regularly consults envi- tion’s members and because of association with the organization. ronmental groups and other NGOs early in project Partnerships that involve volunteerism can boost employee morale. planning, he said. LOOK FOR ALTERNATIVE PARTNERS: A company may be able Attempts to form partnerships don’t always work out, to parry attack from one advocacy group by entering into a partner- Argenti said. Even when an activist group raises an issue ship with another, more cooperative, group. that it feels is legitimate, the group and the company may not be able to agree on the appropriate response. The STICK TO CORE VALUES: A partnership will not succeed in the company then needs to address the issue in its own way, long term if it runs counter to a company’s core values. Argenti said, as Starbucks did by finding methods for

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purchasing Fair Trade and CAFE coffee, even if it didn’t satisfy the Global Exchange activists. “At some point,” Argenti said, “you figure out what actually is right and what works best, and you do that.” The company needs to be able to give the public credible explanations for its decisions, he said. And “it’s very important to have a good relationship with press.”

“I think it can be wise for corporations to try to draw out the operational and service elements of these groups and explore cooperation with them to mitigate the likelihood that the advocacy arms are going to come after them.” — Jonathan Doh, Villanova University

Doh said Oxfam has been particularly “shrewd and strategic” in its approach. “It partners where that makes sense and it’s very public in its criticism where that makes sense, sometimes both with the same corporate entity. I think it can be wise for corporations to try to draw out the operational and service elements of these groups and explore cooperation with them to mitigate the likelihood that the advocacy arms are going to come after them.” Doh also suggested that companies hire NGO executives to bring their insights into the corporation.

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The Power of Association

Corporations often enter partnerships with other corpo- Middle school students would be allowed to buy sports rations through industry associations. In addition to drinks, no-calorie soft drinks and low-calorie juice drinks lobbying governments, associations can head off or during school hours. After school hours, all soft drinks mitigate government regulations by adopting codes of and juice drinks could be sold in middle schools. their own. And they sometimes join with NGOs in those All those beverages could be sold in high schools activities. during school hours, although no more than half of Under fire from advocacy groups for marketing what vending selections could be soft drinks. Although the the groups considered to be “unhealthy” drinks to children, the American Beverage Association twice in less than a year promulgated guidelines for selling its “We’ll never satisfy all the activists, because they members’ products in schools. The first guidelines, can’t be satisfied. The point is to make sure you’re issued in August 2005, were developed by the association with input from parents. Continued agitation by in sync with the mainstream that has the most at advocacy groups led the association to agree to a stricter code in May 2006, even though the industry did not ac- stake...” knowledge that school sales were to blame for childhood — Susan Neely, American Beverage Association obesity. “The activist community was asserting that there was” guidelines were voluntary, Neely expected the vast a cause-effect relationship, association President Susan majority of the industry to go along. Neely said. “Policy makers were looking for some way of responding to that. In the context of this larger debate, The policy was approved after significant debate within the industry asked what meaningful action we could the association, Neely said. Opponents cited “free-market take, rather than having a solution defined by an grounds and substantive grounds,” she explained. “The extremist point of view.” solution is much more complicated than eliminating one beverage. It’s not just the soft drinks.” The Right Mix However, she added, “the perception created by After surveying parents, the association board voted extremist groups was becoming reality and being played unanimously to encourage beverage companies to restrict out in different policy venues. It’s an issue that one can school sales according to students’ age. Only bottled argue is blown out of proportion, but it is what it is. It’s a water and juice were to be sold in elementary schools. publicly debated issue, and people are aware of it and schools are looking for a common sense approach,” which she said the guidelines provided. What NGOs Want Being Part of the Solution

As they have increased their direct targeting of corporations, advocacy Neely reported positive responses from parents. groups have expanded their goals to include: Several state legislatures passed or considered laws modeled on the association policy. Even though the asso- V CHANGING A CORPORATE TARGET’S POLICY: In the most straightfor- ciation would prefer that no legislation be passed, “we ward kind of campaign, the advocacy group seeks change in the made the strategic decision that, if legislatures are going conduct of the company it attacks. to legislate, let’s put our policy on the table and be a con-

V structive part of the solution. They’re much more willing “POOL-SHOT” STRATEGY: Activist group pressures a customer or to work with us because we didn’t just say ‘no.’” supplier of a target company in order to influence the target company’s behavior. The policy “added to the credibility of the industry, having done something that is seen as very legitimate V CHANGING GOVERNMENT POLICY: Advocacy group enlists support of and very significant,” she said. “We’ll never satisfy all the a corporation to lobby for revision of legislation or regulation. activists, because they can’t be satisfied. The point is to

V make sure you’re in sync with the mainstream that has COOPERATION IN ACHIEVING GOAL: Group seeks partnership with the most at stake, and in this case it’s the parents.” company in working to solve a social or environmental problem. As she predicted, many critics were not mollified. The V CHANGING INDUSTRY BEHAVIOR: Group pressures or cooperates with Center for Science in the Public Interest, a Ralph Nader- trade association to set standards that change corporate behavior spawned advocacy group, denigrated the policy as a throughout an industry. “half-step.”

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CSPI, in conjunction with lawyers who had successfully ear in the national media. Incessant attention continued sued the tobacco industry, said it was moving ahead on to be focused on one product as the root of the problem plans to sue soft drink producers. And the beverage asso- in the childhood obesity debate.” Critics’ attacks on soft ciation was approached by the Alliance for a Healthier drinks were “starting to get into the conventional Generation, a partnership of the American Heart wisdom.” Association and former President Bill Clinton’s founda- Neely said the initial tion. The group wanted to talk with soft drink makers guidelines were worth- about joining the alliance’s Healthy Schools Program, while to the industry, even part of its campaign against childhood obesity. though short-lived, After several months of talks, stricter guidelines were because they influenced unveiled in May 2006. These capped the size of bottles or lawmakers who were con- cans sold in schools and the number of calories they sidering legislation on the contain. The only soft drinks to be offered in high schools issue, they were were diet versions. The restrictions applied to after- welcomed by parents, school programs as well. they “gave us a clear offensive in the media The program gives the industry’s representatives because the industry had done something more credibility and enhances their effectiveness credible,” and they when they try to influence governments... opened the door to partnership with the alliance. CSPI Executive Director Michael Jacobson said the new guidelines had “room for improvement.” And he called A Comprehensive Approach for federal legislation that would allow the Agriculture “We liked the Healthy Schools Program because it was Department to banish junk food from schools entirely. a comprehensive approach to school wellness, focused But Jacobson also rated the guidelines “good enough that not just on one product but on all the foods being CSPI will drop its planned lawsuit.” consumed as well as the fitness component,” Neely said. By cooperating with the alliance, she added, the Beverage Friends in the Media Association gained “very strong allies” in the public debate. Neely insisted that the first policy “would more than pass the reasonable mom and dad test out there. What it American Heart Association President Robert Eckel did not do was silence the extremists, who have a willing said the new guidelines stemmed from “a groundbreak- ing agreement” between the alliance and the beverage industry. Clinton praised the beverage producers for having “stepped up to help solve” the childhood obesity problem. Soft drink critics aren’t going to fade away, Neely said. But they speak with less credibility when the industry can point to support from the Heart Association. The guidelines are voluntary but will be widely followed because the chief executives of Coca-Cola, PepsiCo and Cadbury Schweppes signed the agreement with the alliance, Neely said.

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The Sustainable Forestry Initiative® (SFI) Program Growing Tomorrow’s Forests Today® On October 14, 1994, members of the American Forest & Paper Association agreed to adhere to a set of forestry principles that would meet the needs of the present without compromising the ability of future generations to meet their own needs. These principles call for a land stewardship ethic which integrates the reforestation, nurturing, and harvesting of trees for useful products with the conservation of soil, air and water resources, wildlife and fish habitat, and forest aesthetics.

Artwork is owned by AF&PA. Trademark is a registered service mark of the Sustainable Forestry Initiative program.

Competitive Advantage the program, members’ shipments are expedited through customs, Phillips said. Both the Environmental Protection Other trade associations — the American Chemistry Agency and the Occupational Safety and Health Council and the American Forest and Paper Association, Administration have reduced the frequency of their in- for instance — require compliance with certain codes as a spections of members’ facilities, she said. condition of membership. The requirements are designed to reassure the public and to provide a competitive The council wants to “get out ahead and to shape regu- advantage to members who can appear more socially relations, not necessarily to avoid them,” Phillips said. “If sponsible than nonmembers. we can get ahead, set standards, develop smart ways to do things, it’s less work for our members than if they The Chemistry Council’s Responsible Care program have to comply with unworkable regulations.” commits members to public reporting and third-party certification of their compliance with environmental, The Responsible Care program has gotten so far ahead health, safety and security standards. It’s the U.S. part of of government regulations, she said, that the council now a global initiative operating in more than 50 countries. is pressing for tougher federal standards to “level the playing field with companies who aren’t members.” The program gives the industry’s representatives more credibility and enhances their effectiveness when they try It’s in the council’s interest to improve safety through- to influence governments, Deborah Phillips, the council’s out the industry, she said, because “if there’s an incident managing director for Responsible Care, said. Because of in the chemical industry outside our membership, we’ll

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still be painted with the same brush.” Members also Members also are required to take part in the believe the program enhances stock value because of the Sustainable Forestry Initiative® program — third-party increasing importance of socially responsible investing, certification that the company protects wildlife, plants, Phillips said. soil, air and water, while assuring that its lands will support the perpetual growth of trees. The association has The American Forest and Paper Association requires expelled 17 members for failing to comply with those re- members to meet certain performance standards to quirements. “demonstrate that this is an environmentally conscien- tious industry, that we take environment, health and safety very seriously,” said Sharon Kneiss, formerly the association’s Vice President for Regulatory Affairs. Members are required to demonstrate adherence to the association’s Environmental, Health and Safety Principles. These include giving priority to environmental, health and safety considerations throughout company operations, reporting regularly on the subjects to the company’s board of directors, supporting research and development in the areas, and “participating constructively in the development of public policies.”

Going Beyond the Head of the Class Some companies decide to exceed association standards as a way to gain competitive advantage over others in the industry. In addition to meeting the American Forest and Paper Association’s Sustainable Forestry Initiative (SFI) requirements, Potlatch Corp. sought two other certifications of its environmental protection practices — under the International Standards Organization’s ISO 14001 environmental management system specification and from the Forest Stewardship Council (FSC), a global organization supported by many environmental groups. The ISO certification underscored Potlatch’s SFI compliance, Potlatch Public Affairs Vice President Mark Benson said. FSC certification set it apart from all other major U.S. forest products companies. “We’re not arguing whether SFI is better than FSC or vice versa,” Benson said. “We point out that both have their strengths and that the two of them together is a stronger environmental commitment than either one by itself.” “Setting ourselves at the leading edge of forest sustainability” is good business for several reasons, he said. It reassures the public. It enables Potlatch to develop good relationships with “the conservation community.” It positions the company to profit from any consumer demand for “green” products. And it may make the corporation’s stock attractive to socially responsible investors. I’m unwilling to say how much of a (market) opportunity that is,” Benson said. “There’s a network (of environmental organizations) that is trying to create a marketplace where the public would recognize FSC as a symbol of environmental commitment. We’ve positioned ourselves so, if that market takes off, we’re going to be there to serve it.

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Social Responsibility as Business Strategy

Potlatch is far from alone in embracing corporate social issues of the day all end up being of net benefit to the cor- responsibility (CSR), and the number of its compatriots is poration.” growing. PricewaterhouseCoopers reported in 2005, for CSR activities are most effective when they directly example, that 87 percent of CEOs surveyed in 43 relate to a company’s core business, Catania said. For the countries said environmental sustainability is important appliance manufacturer, that includes housing and to their companies’ profits. The annual survey found 79 energy consumption. percent giving that answer in 2004 and 69 percent in 2003.21 Corporate philanthropy also is on the rise, according to a 2006 report by the Foundation Center. Corporate foundations gave away $3.6 billion in 2005, up by 5.8 percent from 2004. “I can remember when corporations were concerned that shareholders would react badly to their charitable giving," said Loren Renz, the center's vice president for research. “But now it's considered good citizenship and good marketing.” 22 Consumer research taught Whirlpool that corporate social responsibility could play an important role in building customer loyalty, according to Tom Catania, the company’s vice president for government relations. As a result, he said, CSR has become a core component of Whirlpool’s decision-making, and every department assesses how its operation’s affect the company’s impact on society. “We do not see a conflict between being a socially responsible company and being a financially responsible Whirlpool supports Habitat for Humanity, both with company,” Catania said. “Treating our employees well, financial contributions and employee volunteers. It being good citizens in the communities in which we donates an energy efficient refrigerator and stove to operate, giving our employees opportunities to address every home Habitat builds in America. It emphasizes

The Shell Strategy The Shell Group requires its facilities and operations to develop a “social performance plan,” to address their impact on local communities, and a “stakeholder engagement plan,” which the company terms “the cornerstone of social performance.” This “continuous engagement process” responds to what the company describes as society’s evolution from a “trust-me to a tell-me to a show-me to an involve-me world.” “Traditionally we focused more on engaging national and local government,” Shell explained in reports on the policies. Now, the company also engages major NGOs, local community organizations and even individuals and families. Shell managers are instructed to consult these stakeholders on design and construction of new operations and on the environmental and social performance plans of existing facilities. The engagement must produce “real outcomes,” the company said. Community engagement on a gas project in the Philippines, for example, resulted in pipelines being routed away from burial grounds and important fishing areas. Engagement must start early, Shell said, so there’s adequate time to build trust and implement changes. Managers cannot turn the process over to consultants nor place responsibility solely with external affairs executives. “Relevant line representatives” must be involved as well. If a community lacks organizations or leaders to participate, Shell will help to develop them. The company said the process “helps build stronger relations with local communities, satisfies our shareholders, increases government support for our business and reduces the likelihood of delays in obtaining regulatory permits.” Source: The Shell Group, “Our Approach To Interacting With Communities,” available online at http://www.shell.com, and The Shell Group, “Social Performance: Key lessons form recent experiences within Shell,” March 2004, available online at http://www.shell.com.

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how its products reduce energy consumption, which Keeping workers happy was one reason General Catania said illustrates how companies can find business Electric initiated a humanitarian project in Ghana. opportunities in addressing social and environmental Although Africa is not a top GE market, members of its needs. African-American Forum employee organization care about poverty and disease there.24 Catania said the growing importance of social responsibility requires corporate executives, including public affairs executives, to “pay more attention to the creation of business opportunities, not just potholes to avoid.” The Pay Offs of Corporate Reputation Are Real “We give consumers the option to replace old appli- For the 10 companies with the highest corporate reputations vs. ances with new environmentally friendly ones,” he said, offering an example. the 10 companies with the lowest reputations, consumers and business decision-makers are: Boosting Employee Morale 7X more likely to buy products/services at a premium price CSR activities also create “tremendous employee en- 5X more likely to recommend stock gagement benefits,” he added. “They feel really good about our work with Habitat.” Employees who are 4X more likely to recommend as a good place to work positive and “passionate” about their employer con- 3X more likely to recommend as a good joint venture partner tribute to customer loyalty through the higher quality of 1.5X more likely to receive the benefit of the doubt their work, he said. Source: Burson-Marsteller's Maximizing Corporate Reputation Research 1998 Such attention to staff desires is essential for a company that covets employees who “want to come to work instead of have to come to work,” Argenti said. “No one Like Whirlpool, GE tapped its business resources to gets up in the morning and says I can’t wait to go out and address a social need — in this case, safe water, reliable enhance shareholder value.” energy and modern medical technology in a Ghanaian district that was short of all. Within nine months, Berkeley professor David Vogel, who is skeptical of working with government agencies and NGOs, GE CSR’s overall value, said it can help companies recruit helped to complete an abandoned hospital project and business school graduates. get it running. It then turned its attention to eight other Business school enrollment is increasing because of the projects in the West African country. belief that “companies don’t have to make a trade-off The projects fit GE executive Benjamin Heineman Jr.’s between doing good and making money,” Vogel, who description of a CSR activity that has a business purpose teaches business ethics and political science, said. because “it helps retain employees and hire the best of a “Business students are usually social liberals and govern- new generation.” GE also has “a diversity agenda that is mental conservatives, so CSR is the perfect ideology for a business necessity for a transnational company doing them.” business in a multi-cultural world,” Heineman said during an online debate about corporate social responsi- “I believe strongly that ‘reputation,’ like ‘brand,’ bility that was sponsored by The Wall Street Journal. has significant economic value to the enterprise, Leadership by Example GE can reap a specific business benefit from reducing even though it cannot be quantified with the its own energy consumption and greenhouse gas precision of cash flow.” emissions “to demonstrate to our customers that it can be done with our technologies,” Heineman, GE’s senior vice — Benjamin Heineman Jr, General Electric president for law and public affairs, said. But there also are broader reasons for acting responsibly, he said. “I believe strongly that ‘reputation,’ like ‘brand,’ has An international survey of college students interested significant economic value to the enterprise, even though in business and economics lends some support to that it cannot be quantified with the precision of cash flow,” analysis. The 2003 survey by GlobeScan found majorities he explained. saying that CSR should be taught more at universities and that large companies should act to “build a better In a 1998 study, the Burson-Marsteller public relations society.”23 and public affairs firm evaluated companies’ reputations,

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then questioned consumers and business executives Improving Communities about the 10 highest and lowest rated. Those surveyed were seven times more likely to buy from the high-rated Target embraces that concept in several ways, among firms, five times more likely to recommend the firms’ the most innovative being its work with law enforcement stock, five times more likely to recommend them as good agencies. Communities with less crime are better places places to work, three times more likely to recommend for the Minneapolis-headquartered discount retailer to do them as good partners and 1.5 times more likely to give business, Nathan Garvis, Target’s vice president of gov- them the benefit of the doubt. A 2001 survey, also by ernment affairs, said. Burston-Marsteller, found 60 percent of consumers The company’s many community service activities also saying they had decided not to make a purchase from a boost employee morale, enhance Target’s reputation company because it was not a “good corporate citizen. 26 among consumers, open government doors when the Heineman also argued that “corporations need to be company wants to discuss public policy, and strengthen mindful about having a growing, healthy society — not the company’s capacity to respond to attack from just economy — to have long-term opportunities.” advocacy groups, Garvis said.

Most Important Thing a Company Can Do to Be Seen as Socially Responsible Open-Ended, Total Mentions, Average of 20 Countries,* General Public (n=2,274), 2005 Fair employee treatment 26 Protect environment 19 Create jobs / support economy 17 Provide social services / give back to community 14 Good quality / safe products/services 12 Be honest/trustworthy 7 Donate to charities 7 Show concern / be socially responsible 7 Obey laws / pay taxes 5 Make profit / good management 5 Low/fair prices 3 Stay in country / do not relocate 2 Protect human rights / no child labor 1 Other 8 *Asked in Argentina, Australia, Brazil, Canada, Chile, China, France, Germnay, Great Britian, India, Indonesia, Italy, Mexico, Philippines, Russia, South Africa, South Korea, Switzerland, Turkey, USA. Subsample: Asked of 100 responders in each country. Source: www.globescan.com

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Target began developing law-enforcement partnerships Garvis argues that such activities enhance shareholder after CEO Robert Ulrich learned how repeat offenders value. often went free because law enforcement agencies lost track of the criminals and didn’t share information with Creating Value other agencies. Ulrich assigned Garvis to work on the “Corporations have to embrace the fact that communi- matter. In a subsequent meeting with Minnesota’s public ties have choices and that their demands on a business have grown beyond hiring people, paying taxes and “It’s more than giving money. It’s giving your producing a good or service,” he said. “You have to be a good neighbor, too. skill set.” “There’s tons of value of a very qualitative nature that’s — Nate Garvis, Target difficult to measure, yet the value is very real. If you’re talking about the sustainable success of a business, you have to consider all types to value.” safety commissioner, Garvis remarked that “it looks like “When Target employees are seen volunteering in the you have an inventory management problem.” Garvis community,” Garvis said, “it makes people feel good offered Target’s help, commenting: “We know where about Target.” Annual surveys show the employees like every pair of socks is in the chain. We know how to the company’s public service activities, he said. manage inventory. We know how to make systems talk Government officials are more likely to listen sympatheti- to each other.” cally to a company’s public policy arguments if they Target also knows a lot about fighting crime because of “have a good idea who you are and what you stand for – its internal asset-protection program for its 1,400 stores. that you’re a good actor.” The program is run by former law enforcement officers Good works won’t ward off all advocacy group attacks, and has among its resources two of the most sophisti- Garvis said. But, he added, “your reputation will cated forensics laboratories in the country. hopefully help you manage them easier.” A New Way of Thinking About Philanthropy You can’t educate in the middle of a crisis,” he said. “You need to educate folks as to who you are and what Initially, Target helped Minnesota connect its law en- you stand for before things fall apart.” forcement agencies, share information, and track its “inventory” of criminals. In the process, Garvis experi- Like Heineman, Garvis argued that “what’s good for enced an “epiphany” about corporate public service. the community is what’s good for our bottom line. A healthy community is a great place to operate a business, “It set me off on a new way of thinking about philan- to hire people, to locate a store, a great place for people to thropy,” he explained. “There are a lot of things we do come and shop. that make us successful as a business and many of those things could be employed in the public sector. The According to Kraus, sophisticated companies realize executive branch of government is a service business. I that “if they don’t sustain growth and people don’t have work for a service business as well. There are lots of a future, then nobody’s going to be able to buy their things we can partner with. It’s more than giving money. products. A couple years ago at Davos, I heard an It’s giving your skill set.” executive say no company can be successful in a failed world.” Target’s law enforcement partnership has grown beyond Minnesota. The company now works around the She pointed to the Global Business Coalition on country with local, state and federal agencies. In addition HIV/AIDS as an example of companies coming together to contributing money, products, and expertise, Target to act on that insight. More than 200 companies have allocates about 40 percent of its forensic lab capacity to joined the coalition “not just to make themselves good agencies working on homicide investigations. citizens,” she said. “They also see the business importance of it in terms of healthy workforces.” Target’s CSR activities also extend far beyond law enforcement. Since 1946, Target, then called the Dayton Company, has earmarked five percent of pretax profits to philanthropy – about $3 million a week in 2006. The contributions support arts, education, health care and emergency relief services. More than 100,000 Target employees do volunteer work.

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No Room for Thinking in Silos

McDonald’s developed its “ethical sourcing” policy in As the sweatshops/ethical-sourcing experiences the late 1990s because its executives were paying demonstrate, executives who do business internationally attention to attacks on other companies that hadn’t been must have global vision. And that means understanding attentive. how NGOs act differently in different parts of the world, said Blood, a Germany-based consultant who monitors “There were very high-profile stories about Nike and NGO activity internationally. Wal-Mart and Kathy Lee Gifford alleging sweatshop labor,” said Rudolph, who was McDonald’s vice president and international general counsel then. At the same time, the McDonald’s investor relations group was hearing concerns about the issue from socially responsible investing organizations. “I and others at the company began talking about whether we knew enough and understood enough about our own program to make sure we were living up to the values we had defined for ourselves as a company,” Rudolph said. “To the incredible credit of the senior management group at McDonald’s, they recognized immediately the importance of making sure we understood what we were doing and how we could improve, and they gave their blessings to do this.”

Living Up to the Standards The company had promulgated an ethics code for suppliers. But McDonald’s executives couldn’t be sure Global Activism the code was being followed. An executive experienced dealing with only U.S. McDonald’s already had established a system for groups would be surprised when confronted by third-party testing to assure toys were manufactured to European activists, Blood said. European groups are specifications, including safety. Now the company set more likely to think and act internationally, he said. about creating a system to assure suppliers did not use They tend to be less pragmatic than their U.S. counter- parts, less inclined to cooperate with businesses, more [It’s] important to talk to people who have con- likely to be antagonistic and more likely to seek redress from governments. structive suggestions that may not be talked about “European NGOs have a quite strong alignment with day to day inside the four walls of the company.” the European left,” he said, “and the European left is distinctly anti-capitalist. They really see corporations as — Phillip Rudolph, Ethical Leadership Group harbingers of evil. There’s no requirement for them to negotiate and compromise, because they are quite effective at getting their policies through the govern- child labor or forced labor, that working conditions were ments.” safe, and that employees were paid a minimum wage. Similarly, Catania said, Whirlpool has run into The company consulted with SRI groups while devel- European activists who are “anti-consumerism. They oping the system, “not because they had experts on their think consumerism is damaging the planet. They say it’s staffs,” Rudolph said, “but because they could bring us a irresponsible for you to convince people to buy dish- shareholder perspective. I believe it’s important to talk washers,” which makes it hard for an appliance manu- to people who have constructive suggestions that may facturer to find common ground. not be talked about day to day inside the four walls of the company.” Anticipating Attacks To identify potential attacks before they happen and to Executives throughout the company need to be alert to manage the issues once they’re spotted, companies need the potential for attacks, Kraus said, because the early to enable “cross-functional dialogue” throughout the or- warning signs may show up anywhere. Because public ganization, Rudolph said. affairs executives are most likely to understand the sig-

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nificance of attacks, they need to be plugged into the full Ruta’s comments underscore the key theme that runs range of corporate decision making, she added. Smart throughout the story of advocacy groups’ current companies will “give the public affairs person a much attempts to influence corporate behavior: Activists wage more strategic role in corporate planning — instead of their battles on every field they can find, and businesses just being in a tactical role, dealing with crises or unantic- best be prepared to engage on whatever field sees action. ipated consequences of government interference,” she That requires all executives to hold a broad view of their said. It can be tricky to prepare a company for potential “Smart companies will give the public affairs person attacks, because “it’s hard to get people to act when they don’t think there’s a threat,” Kraus said. “It’s good to a much more strategic role in corporate planning — have some case studies to show what can happen.” instead of just being in a tactical role, dealing with The global controversy over genetically modified foods provides an excellent example of how an industry can be crises or unanticipated consequences of government devastated because it didn’t understand its vulnerability to attack, she said. It’s essential to “proactively educate interference.” and bring people along any time you have advances that — Margery Kraus, APCO Worldwide go beyond people’s understanding,” she explained, especially “as things get ingested.” “The closer you get to the body in terms of the end-use of your product,” she responsibility to public affairs, to understand how their added, the more likely it is the public will worry and company fits into what is now a global public affairs government will regulate. debate, and to be willing and able to work with col- According to Vicki Colvin, director of Rice University’s leagues in any department to devise and implement Center for Biological and Environmental effective public affairs policies. Nanotechnology, “The failure of the (biotechnology) “Maybe once upon a time the supply chain guy could industry to produce and share information with public do his job without talking to someone else,” Rudolph stakeholders left it ill-equipped to respond to GMO de- observed. “Maybe once upon a time people could occupy tractors.” Industries need to “answer the tough questions these silos and everybody would be fine.” about societal and environmental impacts” while new But not anymore. products are being developed, she added in testimony to the House Science Committee. As Republican Rep. Gil Gutknecht of Minnesota put it, “The people who developed (GMOs) did a fabulous job of selling them to our farmers. They did a miserable job of selling the benefits to the consumers.” Comprehensive Risk Management Doh said paying attention to advocacy groups should be part of “comprehensive risk management.” “I see companies defining risk in a broader sense — risk to reputation, risk in the political world, in the media world, in the labor relations world, risk directly to customers’ confidence in the products or services offered by the firm,” Doh said. “Rather than putting philanthropy way off to the side — and here are the public affairs people and here are the community relations people — they’re all part of the same basic function.” “In addition to watching the stock market and the competition and the supply chain,” Ruta warned, “you need to be watching what’s happening with the environmental, health and social movements. And it’s not just watching what the NGOs are doing. You should be in front of them if you are really good.”

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Notes 1 “Immokalee Farm Workers Receive Top International Prize for Taco Bell Boycott,” Business Ethics Network press release, Nov. 4, 2005, available on line at http://businessethicsnetwork.org/benconference/awards2005.html 2 Mark Tholke, “Collaboration for a Change: A Practitioners Guide to Environmental Nonprofit-Industry Partnerships,” the Erb Environmental Management Institute and the Green Business Network, Sept. 2003, p.30, www.resourcesaver.org/file/toolmanager/CustomO16C45F43021.pdf 3 Paul A. Argenti, “Collaborating with Activists,” California Management Review, Fall 2004, p.93. 4 ibid. 5 “Trust Shifting From Traditional Authorities to Peers, Edelman Trust Barometer Finds,” PRNewswire, Jan. 24, 2005 www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/01-24-2005/0002898452&EDATE= 6 Michael Yaziji, “Turning Gadflies into Allies,” Harvard Business Review, Feb. 1, 2004 7 Lynn Waddell, “Florida Farmworkers Take on Fast-Food Giant,” The Christian Science Monitor, Feb 1, 2001 8 Karen Krebsbach, “The Green Revolution: Are Banks Sacrificing Profits for Activists' Principles?” US Banker, Feb. 6, 2005 9 www.rockpa.org/Content/rockpadocs/Power%20of%20Proxy.pdf 10 http://www.foe.org/camps/intl/corpacct/wallstreet/handbook/index.html 11 http://www.cdproject.net 12 Sholnn Freeman, “Ford Pulls Some Ads From Gay Press,” The Washington Post, Dec. 7, 2005, p. D1 13 David Phillips, “Ford Ad Decision Angers Gay Groups,” The Detroit News, Dec. 6, 2005 14 Dawn Wolfe Gutterman, Susan Horowitz and Jan Stevenson, “AFA Claims Victory, but Ford Says No,” Between The Lines News, Dec. 8, 2005 15 Freeman, op cit. 16 Sean Bugg, “Ford Puts Itself at the Center of the Latest Battle over Gays and Corporate America,” Metro Weekly, Dec. 8, 2005 17 Brier Dudley, “Microsoft May Rethink Position On Gay-Rights Bill,” The Seattle Times, April 26, 2005 18 Michelle Cole, “Nike Steps up to Back Civil Union Legislation,” The Portland Oregonian, June 22, 2005 19 Bugg, op. cit. 20 Op. Cit. 21 Krebsbach, op. cit. 22 Stephanie Strom, “Assets of Foundations Sprint Past Milestone, but Lower Payout Is Foreseen,” The New York Times, April 4, 2006 23 “Students Think That There Should Be More CSR Taught at Universities,” GlobeScan, 2003, www.globescan.com. “Global Campus Monitor,” GlobeScan, 2003, www.globescan.com/default.asp?sp-gcm.asp 24 Mark Kramer and John Kania, “Changing the Game: Leading Corporations Switch from Defense to Offense in Solving Global Problems,” Stanford Social Innovation Review, Spring 2006 25 “Corporate Social Concerns: Are They Good Citizenship, or a Rip-Off for Investors?” The Wall Street Journal Online, Dec. 6, 2005 26 “Go Ahead. Pound Your Chest. A View on the Important of Corporate Social Responsibility Communications,” Burson-Marsteller, http://www.bm.com/pdf/csr_communica- tions.pdf#search='mike%20mckenna%20pound%20your%20chest'

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