McKinsey Global Survey - Business & Society
Thursday, 23rd February 2006 at 12:02 pm
The Quarterly McKinsey Global Survey of Business Executives across the world has found they strongly agree that business has social obligations but fear that it doesn’t know how to manage them.
The McKinsey Quarterly conducted the survey in December 2005 and received responses from 4,238 executives—more than a quarter of them CEOs or other C-level executives—in 116 countries. The McKinsey Quarterly is the business journal of the global management-consulting firm McKinsey & Company. (www.mckinsey.com)
The findings according to McKinsey highlight some of the key issues that businesspeople expect stakeholders, social and consumer activists, and the media to raise during the next five years.
The survey says the responses provide striking evidence of the way environmental concerns, doubts about data privacy, the controversy around offshoring, and other sociopolitical matters have firmly inserted themselves into the day-to-day agenda of the executive suite.
Unquestionably, it says, the global business community has embraced the idea that it plays a wider role in society. More than four out of five respondents agree that generating high returns for investors should be accompanied by broader contributions to the public good—for example, providing good jobs, making philanthropic donations, and going beyond legal requirements to minimise pollution and other negative effects of business.
Only one in six agrees with the thesis, famously advanced by Nobel laureate Milton Friedman, that high returns should be a corporation’s sole focus.
The survey says respondents are mostly upbeat about the broad impact of business on society: some 68 percent say they are either “generally” or “somewhat” positive about the contribution that large corporations make to the public good.
The proportion jumps to 76 percent when executives are asked if their own companies make a positive contribution.
Yet the survey says many respondents stress the risks to the reputation of companies, as well as the potential for damaging their shareholder value, when they are expected to address social and political concerns.
Across most sectors—notably consumer-facing ones—nearly three in ten respondents say that the media or interest groups have criticised corporations in their industries for “failing to meet social responsibilities generally expected of them but not required by law.”
Executives believe that the solution lies in their own hands. Asked how adequately the respondents’ companies anticipate social pressure—including criticism of their activities—46 percent say that they have “substantial room for improvement,” and a further 24 percent admit to seeing “some room.” Only 3 percent report that their companies are doing a “good job.”
The McKinsey Quarterly says that one explanation for these shortcomings appears to be that companies are taking the wrong approach. The respondents were asked which tactics their companies actually rely on most frequently and which tactics they themselves consider most effective—whether or not the companies actually use these effective tactics.
Almost half of the respondents say that their companies are currently lobbying regulators and governments and using the media and public relations as part of a strategy to manage social and political challenges. But when executives are asked what tactics they consider most effective in managing such challenges, only 35 percent propose using the media and PR.
The survey says a mere one-quarter recommend lobbying. A significantly higher proportion of the executives hold that the most effective tactics are policies on ethics and other corporate-responsibility issues, stakeholder engagement, and increased transparency about the risks of products or processes.
The survey says the choice of tactics is also an issue in assigning leadership. Asked who actually takes the lead in trying to manage the sociopolitical agenda of their companies, more than half of our respondents point to the chair or chief executive. A further 14 percent report that the public- or corporate-affairs department typically holds the reins. When asked who should take the lead, however, almost three-quarters opt for the chair-CEO and a mere 4 percent for the public- or corporate-affairs department.
The survey says executives are hard-nosed about why companies are engaging in this new agenda. Only 8 percent think that large corporations champion social or environmental causes out of “genuine concern.” Almost nine in ten agree that they are motivated by public relations or profitability, or by both concern and business benefits in equal measure.
Looking ahead, executives revealed that they expect that a wide range of concerns will dominate public and political debates. Asked which three issues will have the most impact, for better or worse, on the shareholder value of companies in their industries during the next five years, 41 percent choose job loss and offshoring.
Also at the top of many minds are corporate political influence and involvement; environmental issues, including climate change; pension and retirement benefits; and privacy and data security.
The survey says that surprisingly human-rights standards—a cause long championed by non-governmental organisations—barely register as a concern.
According to the survey, 20 percent of the respondents believe that the public will expect companies to take on most of the added responsibility for handling social and political issues, while an additional 59 percent think the burden will fall equally on governments and companies.