Corporate Social Purpose

Nicholas J Price

Corporate social purpose is a broad term that encompasses a wide array of issues and activities that promote positive social impact for all shareholders and stakeholders. As investors are taking a keener interest in corporate social purpose, it's caused corporations to also review their involvement in social purposes.

According to Deloitte, about 90% of companies participate in some type of social purpose activity. Some companies have been quick to get on the bandwagon because they believe it will give them a competitive edge. In addition, companies that take a proactive approach toward corporate social purpose demonstrate to shareholders that they're fully invested in their social purpose commitment.

The new trend toward corporate social purpose means that boards need to add oversight to their board agendas in the area of corporate social purpose activities.

What Is Corporate Social Purpose?

By creating opportunities for corporate social purposes, companies can make a positive impact on economic and social issues, as well as improve the environment.

There are limitless ways that boards can invest in social purpose activities. Here is a short list of the possibilities:

  • Sponsorships
  • Employee matching
  • Volunteerism
  • Corporate foundation grants
  • Taking a stand on human rights
  • Environmental concerns regarding the supply chain and vendors
  • Safeguarding the company's impact on the environment
  • Supporting diversity
  • Providing a safe and supportive workplace
  • Supporting the community
  • Partnering in shared value initiatives
While shareholders are starting to become the frontrunners of those who are leading the charge for companies to get involved in social purpose matters, many other stakeholders are also viewing companies' responses to social purpose efforts. They include employees, customers, suppliers and the surrounding community. Boards need to consider the whole constellation of stakeholders when making decisions about corporate social purpose activities.

Signs of Sparks in Shareholder Interest in Social Purpose

The most prevalent signs of interest in social purpose by the shareholder community took place during the 2016 proxy season. There were several hundred shareholder proposals on social responsibility issues. Most of the proposals only garnered mild interest; although six proposals passed. The trend continued in 2017, when another six proposals passed.

Generally speaking, shareholders have been sounding the call to CEOs to deliver strong financial performances along with notable efforts for positive social impact.

In other social purpose trends, a 2017 Edelman study of institutional investor trust showed that 76% of investors hold expectations that the companies they invest in will take a public stand on social issues. The study also indicated that about 69% of investors expressed concerns about how companies treat their employees. Moreover, about 82% of investors said that they considered trust to be one of their top concerns when making a decision about whether to invest in a particular company.

Corporate Involvement in Social Purpose Provides Value

Companies that take a stance on social purpose issues set themselves apart from competitors and other businesses, which gives them differentiation and places their brands in a positive light. Social purpose programs also highlight the special talents that many of their employees have, which is another positive. Getting involved with social purpose also yields other benefits, like helping to mitigate certain risks, demonstrate innovation, create operational efficiency, and open up access to additional market capital.

Role of the Board in Corporate Social Purpose

Corporate boards are taking a critical look at how to they can integrate social purpose efforts across all aspects of the business. Many boards are considering how they can shift from responsibility for social purpose into viable business opportunities. Social purpose activities are now a realistic source of shareholder value. For this reason, boards need to consider the impact of their short- and long-term decisions on social purpose matters.

The issue of social purpose is likely here to stay, which is a good reason for boards to form a social purpose committee with the goals of using it to generate increased reputational value and making a public demonstration of their commitment to social purpose issues. Making a move toward social purpose gives board directors an additional area to oversee. As with all other new programs and innovations, nearly all social purpose activities will come with some degree of risk.

Corporate boards will need to consider what types of social purpose activities are best suited for their company's involvement and determine what actions they need to take to implement social purpose projects. Social purpose committees can hash out their discussions and plans within the security of a board portal system by Diligent.

Management will need to be involved with social purpose activities, so they'll need to have many ongoing discussions with the board about what their role is in social purpose activities, including understanding any new duties, responsibilities or expectations.

Something that board directors and managers alike need to be concerned about as they enter the world of social purpose is that new activities will likely affect other core business practices.

In the quest for materials to support social purpose activities, the changes will likely have a strong impact on purchasing and procurement staff. Boards and managers will need to look at policies, practices and, perhaps, staffing in moving forward with social purpose projects. The impact may cause boards and managers to revisit how they pick and choose social purpose activities, as well as how they can track their performance. To provide another example, increasing diversity among employees may require the board and management to review their employee recruiting, hiring, training and ongoing engagement practices.

Summarizing Thoughts on Corporate Social Purpose

Obviously, there are many prominent signs that corporate social purpose is making its mark in the corporate arena. This is a sign that we can likely expect an increased number of shareholder proposals around the topic of social purpose around proxy time. At some point soon, more proposals will make the ranks of important issues for boards and managers. For now, there doesn't seem to be a downside for companies making a robust move to incorporate a few social purpose projects into their repertoire. As social purpose begins to take its place as a corporate staple, board directors and managers will need to review any risks with equal doses of care and enthusiasm.
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Nicholas J. Price
Nicholas J. Price is a former Manager at Diligent. He has worked extensively in the governance space, particularly on the key governance technologies that can support leadership with the visibility, data and operating capabilities for more effective decision-making.