CSR reaches a tipping point

How the events of 2020 hastened the rise of stakeholder capitalism and reshaped the meaning of corporate purpose.

Snow Globe_Brendan Stephens

This story originally appeared in the Winter 2021 issue of strategy.

The tides were turning well before the pandemic.

In August 2019, a group of nearly 200 of the most powerful CEOs in the U.S., known as the Business Roundtable, declared a new purpose for corporations. An influential lobbying group that, since 1997, had held firm to the idea that companies exist to create profit for their owners now believes that businesses should act in the “the benefit of all stakeholders” – meaning, companies no longer only work for shareholders but also customers, employees, suppliers and communities.

A letter sent by BlackRock’s Larry Fink, CEO of the world’s largest asset manager, in January 2020 sent further tremors across the corporate world. Fink warned other CEOs of a pending “fundamental reshaping of finance.” Moving forward, the firm with nearly $8 trillion in managed assets would begin to redirect its clients’ dollars into sustainable companies.

Declarations like these marked a culmination of trends originating in Scandinavian countries in the ‘90s and later exported to other parts of Europe and North America, where “consumers and activists were asking companies to start engaging with bigger issues, to drive positive change in society,” says Scott Goodson, founder and CEO of movement marketing agency StrawberryFrog. “Up to that point, CSR was always seen as a nice way to almost atone for the sins of the corporate.”

As stakeholder capitalism grows more influential, once-modest CSR programs are evolving into far-reaching “purpose strategies” that help brands drive meaningful change across “big ticket issues,” says Goodson. “It’s no longer a fringe project with a tiny budget. It’s become the centerpiece of the [business] strategy.”

In 2020, those purpose strategies were thoroughly tested. The pandemic saw businesses focus on keeping employees and customers safe, while the police killing of George Floyd that spawned new Black Lives Matter protests forced brands to reckon with their role in systemic racism.

These disruptions only served to accelerate the transformational change of the last few years, according to experts and members of strategy’s CMO Council advisory board. For one, they “exposed some significant inequities in our society that weren’t readily visible to a lot of groups and people,” such as food insecurity and racial biases, says Tim Faveri, VP of sustainability and shared value at Maple Leaf Foods. “I think, and I hope, that companies are looking at CSR in a different way.”

Priorities turned upside-down

While environmental concerns remained throughout the health crisis, “social issues and caring for people became the number one CEO priority,” says Jean-Philippe Shoiry, CSO of Republik, a CSR-focused agency. “Although it might be surprising, it wasn’t the top priority before – I’m not sure it was within their top three priorities.”

Companies found ways to show they care, from donating profits to support employees and their families, as Aritzia did, to giving temporary pandemic pay to frontline grocery staff during lockdowns. For those whose employees worked from home, the focus became combatting the mental health impacts of extended periods of isolation. Programs launched by Microsoft and Canada Goose, to name a few, helped boost staff morale, well-being and creativity. Some companies turned their attention to their customers and business partners. Unilever, for example, offered to pay struggling suppliers in advance, while the country’s largest brewers and distillers launched campaigns and donated funds to support hard-hit restaurants and bartenders.

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These initiatives came in response to the realization that, even as national and global companies braced for a difficult 2020, small businesses would bear the brunt of COVID-related restrictions. To lend a hand, big brands including RBC, American Express and Kraft Heinz stepped up with initiatives or donated ad space for small shops. Meanwhile, GE Appliances diverted advertising dollars to help small restaurants, says CMO Council member and the company’s chief of brands Bob Park.

“It’s the reverse of what’s good for us in the sense that the more you order from small restaurants, the less you’re using [our] appliances,” he says. “But it gave us an opportunity to give back.”

Efforts to save local businesses coincided with another pandemic shift: an increased focus on local. According to research firm Kantar, the pandemic led 65% of consumers to prefer buying goods and services from their own country. This had an impact on the products that brands stocked – Sobeys, for example, doubled its assortment of local products in stores – and led companies to take a more localized approach to support communities.

While Telus has been doing this for years – having established local community boards in 2005 that decide where to direct the company’s charitable contributions – the pandemic accelerated this trend for more businesses, says Jill Schnarr, strategy CMO Council member and chief social innovation and communications officer at Telus.

At Sobeys, SVP of marketing Sandra Sanderson, who also sits on the CMO Council, says research showed that consumers engaged at the community and neighbourhood level during the pandemic. Using this insight, the grocer partnered with 13 children’s hospital foundations and encouraged customers to donate to their local hospital instead of pooling all the money in one place. “We ended up doubling our target,” she says.

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As the need to localize grows stronger, multinationals can no longer afford to treat the entire country of Canada as the “local” market, adds the CMO Council’s Jeremy Oxley, Canadian VP of marketing, strategy and insights at dairy giant Danone. “It’s no longer good enough to say, ‘We’ve got a Canadian [division] or we’re made in Canada.’ What are you doing to help people in B.C. if you’re a company based in Ontario or have production facilities in the eastern part of the country?” As a result, Oxley says there’s been a “fundamental shift within Danone to refocus and redistribute decision-making to be closer to local consumers.”

Beyond addressing the impacts of the pandemic in 2020, brands soon needed to grapple with a racial justice awakening. In June, when the Black Lives Matter movement swelled, being a responsible organization also meant taking steps to address systemic racism. This time, calls for racial justice reached the highest corner offices, whose support for the movement was expressed through pledges, donations and new D&I mandates.

Open letters circulated calling on businesses to commit to change. An initial two hundred Canadian companies signed the BlackNorth Initiative, a pledge to address racism, while the 15 Percent Pledge has seen companies like Sephora and Indigo commit to allocating 15% of their shelf-space to Black-owned businesses.

In response to public outcry, CPGs promised to rebrand products whose brands were built on racist stereotypes, from PepsiCo’s Aunt Jemima to Mars’ Uncle Ben’s and B&G Foods’ Cream of Wheat. Unilever’s Ben & Jerry’s (which had publicly supported Black Lives Matter four years before) noted “the urgent need to take concrete steps to dismantle white supremacy” and called on the U.S. government to take action.

As more brands focus on purpose, it will become more difficult for marketers to carve out a differentiated position. “For a long time, companies always wanted to own an issue,” says Phillip Haid, co-founder and CEO of Public, whose agency specializes in purpose-driven marketing. He says many clients come at it from the perspective of: “What’s our Bell Let’s Talk?”

That’s beginning to change, says Haid. “Companies need to lean into issues in ways they couldn’t even fathom three, five, 10 years ago,” he says. “Because you’re playing a much more active role, to own an issue is virtually impossible.” Instead, he sees companies working together to advance their individual goals.

In July, for example, a number of global brands joined #StopHateForProfit, a movement to temporarily suspend or reduce advertising on Facebook after advocacy groups accused the company of not doing enough to moderate hate speech and misinformation on its platform. Later in the year, P&G Canada president Geraldine Huse called on the industry as a whole to “accurately and respectfully portray people” of all backgrounds and to eliminate hateful content across platforms, calling it “bad for people, bad for society and bad for business.”

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Canadian companies are also banding together on environmental sustainability, recognizing that saving the planet is too big a mandate for any one brand. In December, a coalition of companies consisting of Maple Leaf Foods, CN and Celestica released a joint letter outlining their commitment to take action against climate change – through, in part, reducing carbon emissions and setting science-based targets – and calling on other companies to do the same.

On the same day, more than twenty Canadian retailers and CPGs – including Loblaw, Kraft Heinz, Coca-Cola, PepsiCo, Nestle, Unilever and Walmart – signed a pledge organized by The Consumer Goods Forum to reduce waste by eliminating materials from their plastic packaging that are difficult to recycle.

Joint initiatives like these are gaining traction as companies recognize the risk of falling behind their competitors. As more companies get involved, there’s a sense that the stakes have never been higher.

Standing out when “everyone is doing purpose” is the “challenge of yesteryear,” says CMO Council board member Gina Kiroff, who is also a director of marketing at Unilever. “Now you stand out if you’re not doing purpose. If you’re in QSR and you’re serving plastic straws, you stand out. If you’ve got managerial staff and they’re not 50% women, you stand out.”

Early in the pandemic, research suggested consumers were watching brands’ every move. An April report by Edelman found 26% of Canadians had tried a new brand due to the “innovative or compassionate way” it had responded to the crisis – a proportion that grew nine percentage points come July. Meanwhile, 24% of respondents had convinced others to stop using a brand they “felt was not acting appropriately” (that percentage also grew over time, hitting 34% by July).

Last summer, a survey by FleishmanHillard HighRoad found Canadians held CEOs and their companies to a higher standard than other countries on COVID matters, as well as racism, the environment and employee wage gaps. For example, 69% of Canadians believed companies should take a stand on equality and racism, compared to an average of 59% globally.

Over the last year it became apparent that companies need to live their corporate values internally as often as they state them publicly. It’s important in attracting and keeping top talent, says Republik’s Shoiry, especially at a time when office culture is limited to virtual happy hours. “Talent acquisition [and retention] is something every C-level is talking to me about right now. It’s one of the outside forces pressuring them to move into the purpose sphere, and potentially, the main one.”

“This year is causing everyone to reflect on their job, their life, their relationships,” adds Telus’ Schnarr. “If employees aren’t working for a company that is values-driven, then they’re going to leave.”

Oxley says that Danone is trying to create a culture of care through employee-led initiatives like “One Person, One Voice, One Share,” which gives every one of its 100,000 staff a voting share. Through an annual consultation process, the company uses employees’ views to inform strategic planning. “We reach out and ask them, ‘Where do you think we should focus? Where do we want to put our energy?’” says Oxley. “It allows us to know where employees’ heads are at… and where they think our help is needed most.”

Danone sees this as an important step towards achieving its 2030 sustainable development goals: in June, those 100,000 shareholders voted overwhelmingly in favour of adopting the French Entreprise à Mission model, embedding its corporate purpose, as well social and environmental goals, into its articles of association.

Telus Agriculture

Similarly, Telus ensures that every business segment it enters not only drives a financial return, but also contributes to the organization’s vision for good, says Schnarr. Such was the case with the launch of Telus Agriculture, a new business unit focused on providing connected tech solutions to the agriculture industry. When it comes to marketing, Schnarr says Telus focuses on the societal problem – food production demands are expected to grow by 70% over the next 25 years – and then showcases how it’s helping to address the issue.

The more brands pursue purpose and the savvier consumers become, the more companies will be asked to provide proof of their progress, according to Shoiry.

“Where most brands are going to have a lot of trouble is accountability,” he says. “To all those brands that are taking a stand, are you reporting and publishing that information, even that which you don’t want to publish? Or are you just pushing those one or two big numbers that you’re proud of?” The CSO believes brands that are transparent about their failings, as much as they are about progress, will emerge as “the real changemakers.”

It’s clear that the corporate responsibility bar continues to rise and that the pandemic and racial justice movement have only pushed it higher. And although a lack of purpose hasn’t yet hit all brands’ bottom lines, there’s reason to believe it can drive long-term profit. A 2018 global survey by DDI found companies that act with purpose outperformed financial markets by 42%. In a well-documented case of success with purpose, Unilever’s “sustainable living brands” consistently grow faster than the rest of its portfolio.

“The majority of the impact [is still] to come in the longer term of people supporting the brands and companies that have shared values,” Oxley says. “This is the first wave of a tidal wave that will fundamentally reshape our industries.”

Brands that have developed their purpose strategies will “thrive in this new world,” adds Strawberry Frog’s Goodson. “Companies without that will feel like rudderless ships zigzagging, tacking back and forth trying to figure out what to do next.”

Featured image photo credit: Brendan Stephens.