Framing the Debate on “Doing Good” Dr. Charles J. Fombrun Executive Director The Reputation Institute Santiago, Chile 26 September 2005

2 © Reputation Institute 2005 Is CSR Subversive? Happy Birthday, Mr. Friedman ! "The Social Responsibility of Business Is to Increase Its Profits.” Milton Friedman, 1970 “I have never known much good done by those who profess to trade for the public good.” Adam Smith, 1776

3 © Reputation Institute 2005 But the Public Supports View that Companies have Social Responsibilities U.S.NetherlandsDenmarkItaly Generate profits for shareholders 1% 3%6% Responsibility to shareholders AND employees and customers 56%45%42%25% Shareholders, employees, customers, plus broad social responsibility 43%51% 66% Source: Harris Interactive & Reputation Institute,

4 © Reputation Institute 2005 Target Corporation: Strategic Philanthropy

5 © Reputation Institute 2005 Home Depot: “A Month of Service” 50,000 Employees, 2 million hours of Community Service

6 © Reputation Institute 2005 GE’s Ecomagination: Environmental Solutions

7 © Reputation Institute 2005 IBM: On Demand Community –Technology Solutions

8 © Reputation Institute 2005 Wal-Mart’s Good Works

10 © Reputation Institute 2005 World Business Leaders for Growth Founded by: –Business Council of Australia (Australia) –Business Roundtable (United States) –Canadian Council of Chief Executives (Canada) –Consejo Mexicano de Hombres de Negocios (Mexico) –The European Round Table of Industrialists (Europe) –Nippon Keidanren (Japan) Agree on S.E.E. Initiative

11 © Reputation Institute 2005 Better Business and a Better World: CEOs Adopt Business Strategies and Projects That Benefit Society, Environment and Economy Business Roundtable Launches "S.E.E. Change" Initiative to Spur Sustainable Growth “Businesses are in business to generate growth, but sustaining growth is more complicated. The purpose of S.E.E. Change is to urge companies to adopt business strategies and projects that are good for the environment and society – and good for their bottom line.” Charles O. Holliday, Jr., Chairman & CEO, DuPont “Our stakeholders – investors, employees, customers, suppliers, and the people in the communities where we live and work – want to know how we are performing in each sphere of sustainability: social, environmental and economic. It is our belief that the best companies are able to perform well in all three and that doing so is critical to their own sustainability.” Andrew N. Liveris, President and CEO, Dow Chemical “Our commitment to S.E.E. Change can be summed up in three words – Responsible, Transparent and Accountable. It is a strategy that builds business value while paying dividends to our shareholders, our environment and our society.” Steve Odland, Chairman & CEO, Office Depot

12 © Reputation Institute 2005 But the Public is Ambivalent about Corporate Communications of CSR January 16, 2002

13 © Reputation Institute 2005 Wal-Mart Watch…

14 © Reputation Institute 2005 Efforts to Assess ‘Reality of Corporate Behavior’ has led to Regulatory & Voluntary Standards as well as ‘Social Audits’

15 © Reputation Institute 2005 CSR is a Key Part of Creating Economic Value and Stakeholder Support When it’s Done Right, it Builds Reputation & Financial Results Corporate Strategy Corporate Strategy Business Activities Business Activities Financial Results Financial Results Stakeholder Support Stakeholder Support Corporate Reputation Corporate Reputation Corporate Communication Corporate Communication The Business Cycle The Reputation Cycle CSR Initiatives CSR Initiatives

16 © Reputation Institute 2005 Employees Social Performance on Job AttractivePositive Social Performance on Work MotivationPositive Yes, A Positive Relationship Environmental Performance Environmental Ratings on ProfitsPositive Environmental Awards on Market ValuePositive Pollution Output on Market Value Negative Philanthropy Donations on Market Value Positive Contributions & Advertising on SalesPositive Community Responsibility Rankings on ProfitsPositive Long-term Investors on KLD IndexPositive Research Shows that CSR is Linked to Financial Results

17 © Reputation Institute 2005 Consumer Research tells us that CSR Affects their Perceptions of Companies

18 © Reputation Institute 2005 Products & Services.56 And Indicates that Perceptions of CSR Drive Reputation Financial Performance.07 Vision & Leadership.17 Workplace Environment.34 Emotional Appeal Social Responsibility.40.63

19 © Reputation Institute 2005 ` ` Core Purpose Values Expressions Images Reputation Identity But CSR Only Works When Linked to Core Purpose and Competencies of Company, not just PR Is CSR activity authentic & credible?

20 © Reputation Institute 2005 So CSR must be Strategic… Moral Pillar Economic Pillar Community Pillar Be Authentic Address a Social Problem Draw on Core Competence Corporate Reputation

21 © Reputation Institute 2005 International Issues Work Environment Local Community Issues National Social Issues Leverages Employee Pride …As Well as Be Appropriate to the Situation

22 © Reputation Institute 2005 “Experience tells us that sustainable business practices are not only socially responsible but financially smart”. Anne M. Mulcahy, Chairman & CEO, Xerox “We believe in ‘doing well by doing good’.” Steve Odland, Chairman & CEO, Office Depot Happy Birthday, Mr. Friedman! But You’re Wrong…