Angela K. Chitkara & Michael V. Marinello 22 Aug 2019 // 11:00AM GMT
CEOs are becoming more concerned with the way their companies/brands are impacted by the dramatically changing atmosphere around social issues. The age of activist investors has given way to this new era of “the activist consumer.”
They are operating in a world where diversity and inclusion, socio-economic inequities and generational shifts, are part of the same equation. And the sum of these components are factoring into the decision-making process of customers, partners and consumers, and most importantly employees and potential hires. What a company says (and stands for) versus what it does (and how it acts) has never mattered more, and never been more scrutinized.
There is no greater proof than the recent statement of purpose by the Business Roundtable, which Fortune’s Alan Murray described as “The End of Shareholder Primacy.” This statement, written by and agreed to by the world’s most powerful and influential CEOs, emphasized customer value, investment in employees, social impact, diversity and inclusion, and ethical suppliers well before shareholder value ever made an appearance in the document. It was nothing short of a revelation.
While there are a variety of resources available to help companies navigate the current landscape, we believe there is an extraordinary opportunity for public relations professionals and firms to redefine their place in the brand ecosystem as trusted, strategic counselors. There is no group better qualified to take what have traditionally been considered “qualitative intangibles” and help make them quantifiable.
There is an opportunity for public relations pros to provide guidance in publicly-disclosed documents relating to these social risk issues that tie to corporate reputation and brand responsibility. Sure, disclosure falls under the investor relations function, but in today’s environment, capturing these qualitative intangibles, such as social sentiment referenced by Professor George Serafeim of Harvard Business School, help provide context of where business and society intersect, and understanding of the world around us.
Public relations, at the end of the day, needs to be more about storytelling and less about banal publicity. Elevating the craft in this way and combining it with true thought leader and media relationship building, and data and analytics to assess risks and measure progress is a powerful offering for clients.
Today, a grey area exists between self-regulation and regulation by the government on what is considered “materiality.” Blackrock Chairman Larry Fink has made diversity and inclusion a mandate because he recognizes the value it brings to financial investors that ties to attracting top talent, innovation and financial performance, as well as the contributions to society overall. Ultimately, there are investment firms like Blackrock, that want to make long-term socially impactful investments which make a difference and lead to a closing of the socio-economic gap for underserved populations, that enable better access to education and healthcare. And it is ultimately better for public markets and better for the economy.
Still, a disconnect exists between corporate sustainability reporting and standardized disclosure of social risks in Securities and Exchange Commission (SEC) documents. There is no set standard when it comes to corporate sustainability reporting. In fact, it is voluntary because the materiality found in these reports for investors has been qualified but not quantified. Corporate sustainability reporting remains voluntary, and a best practice to report on non-financial impact. According to GRI Standards, however, that dynamic might change. Because “impact” refers to the effect an organization has on the economy, the environment, and/or society, which in turn can indicate its contribution toward sustainable development now might soon be considered material.
The United States is lagging behind the UK and Europe in sustainability reporting, where it is required reporting in areas of gender pay equity. We are now entering an environment in which disclosures relating to human capital will be a requirement in the United States as we see more pressure by consumers and investors for this type of disclosure. GRI, or the Global Reporting Initiative (GRI) is an international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights and corruption. Under Diversity of Governance Bodies and Employees ( Disclosure 405-1), companies in the UK have started to disclose the percentage of staff employed by gender, age group and other indicators.
SASB, the Sustainability Accounting Standards Board, has identified sustainability issues that are likely to affect the financial condition or operating performance of companies within an industry. Within its multitude of dimensions reflected in its Materiality map, SASB is recommending the standardized reporting of Human Rights & Community Relations under the Social Capital dimension; Employee Engagement, Diversity and Inclusion under the Human Capital dimension; Critical Risk Management under the Leadership & Governance dimension. An opportunity exists for public relations professionals to help brands mitigate risks by interpreting, defining and assessing the materiality of social risks to stakeholders and investors.
When we think of these standards put forth by SASB and GRI, we think about a multitude of conversations we have had with clients and industry leaders about how diversity and inclusion and corporate sustainability are tied to strong leadership at the top.
Barie Carmichael, co-author of Reset: Business and Society in the New Landscape recommends identifying “inherent negatives” within a company’s business model before these become a crisis. These inherent negatives could be found in the supply chains and even leadership ranks of brands.
In today’s environment there is a very strong need for brands to align what they say with what they do, to achieve short and long-term business success.
The challenge for communications professionals is to help clients (internal or external) meet their short-term expectations with the knowledge that diversity and inclusion and corporate sustainability is a long-term game. Currently, in Securities and Exchange Commission (SEC) documents, we are seeing more companies disclose their efforts relating to diversity and inclusion, such as reaffirming their commitment toward racial and gender equality in the workplace and the hiring and retention of diverse talent, and the number of women appointed to board positions, for example.
In the next phase of research, we will explore how these concepts of social purpose and diversity and inclusion align with a brand’s corporate sustainability efforts.
Angela K. Chitkara is assistant professor, Branding + Integrated Communication (BIC), The City College of New York (CCNY). She has previously researched diversity and inclusion and campaign development.
Michael V. Marinello is board member, Branding + Integrated Communications (BIC), The City College of New York (CCNY) and an independent consultant.