Corporations are recognizing new duties in areas that are not strictly related to their financials. Succeeding in these non-financial pursuits requires the same efforts and the same kind of accountability as in formal finance though.
It is an old truism that continues to be invoked because of its wisdom: you can’t manage what you don’t measure. We need to measure because we need to manage and the number of things we need to manage is only increasing. Where businesses were once content with reporting on financial issues for a long time, a new trend in non-financial reporting is just beginning.
Perhaps the biggest milestone came in 2019 when the Business Roundtable, a group of big company CEOs that tries to guide the imperatives of global business and economics, said that the era of shareholder capitalism was giving way to stakeholder capitalism. Stakeholder seems an odd construction, even somewhat foreign, and the concept of replacing the shareholder at the center of finance and economics seems odder still. But stakeholder capitalism doesn’t seek to upend the shareholder, it simply seeks to acknowledge others as co-equals.
The Business Roundtable’s idea of stakeholders includes shareholders but also acknowledges employees, customers, partners and local communities. Going back to the idea of measurement and management, stakeholder capitalism suggests a new need to manage, and therefore measure, a corporation’s involvement in each sphere.
CRM As An Example
For decades corporations have tried to understand customers through various software applications that fall under the umbrella of CRM or Customer Relationship Management and for good reason. Measurably happy customers tend to buy more and stay with a vendor longer than their less happy peers. In CRM we’ve developed an array of management tools and techniques to measure and thus manage our customer outreach.
For example, what’s your business’ attrition rate? In the late 20th century, many businesses had no way of knowing and too often relied on keeping prices low to keep people coming back. That strategy left less room in corporate budgets for things like customer service which was often the second thing to be cut in economic tough times, the first being marketing. But customer service is in many ways the thing that businesses use to prove their sincerity to customers and a strong way to develop good word of mouth and to keep customers coming back. We didn’t track customer attrition and the reasons for it so we relied on discounting.
I once wrote a book about CRM in which I reported searching the Internet for variations of company names to see how customers felt about their vendors. The most useful research tool was appending the word “sucks” to any company name. So, a search composed as “Company A Sucks” would often return hundreds of thousands of hits, which would not be returned if the search criteria simply Company A.
Interestingly, this was just before social media became the rage and the hits that I discovered were blog entries or even whole blogs dedicated to Company A’s disparagement by aggrieved former customers or worse, active customers who had nowhere else to go.
A lot of that rage has dissipated thanks to social media because today anyone, even without the desire to build a blog, can now publicly shame @CompanyA easily enough. Thankfully, most corporations today collect customer data and analyze it to make sure such things don’t happen. You can largely thank CRM for that and because of this experience you might conclude that the people at the Business Roundtable, in addition to more noble instincts, were thinking they might not want a repeat of the last two decades’ customer antipathy when considering employees, partners or their local communities. But there’s more to it.
Moving out from CRM
How can we measure how we’re doing with employees, partners and locals? Who has that responsibility in the traditional corporation? We need to capture and report on a lot of new data that we have not considered very much, if at all, before.
Ultimate corporate responsibility resides in officers who have Chief embedded in their titles. Their data collection and reporting responsibilities are expanding to tracking data about employees, partners and communities and then developing metrics as meaningful as customer attrition rates and recurring revenue.
Employee attrition is normal everywhere and it happens for many reasons. But are your employees dedicated to the organization or just collecting a paycheck? Do they recommend their own products and services when they have a chance? Do they tell friends that your company is a good place to work? If not, this may indicate your employee churn rate is higher than ideal.
That’s important too because replacing employees is like replacing revenue lost through customer churn. It has to be done and it isn’t usually profitable. You could say the same thing for all stakeholders that the Business Roundtable cited but you can’t simply ask them straightforward questions. You have to collect data about behaviors to get a clear understanding. So it becomes important to know what the median customer, partner or employee behavior is and what the early warning signs of discontent are. That’s where non-financial reporting comes in.
Specializing and Diversifying
Financial reporting is a specialty of the finance department and its leader is the CFO. Similarly, the VP of HR might be the logical specialist to assess employee happiness and loyalty. But in other areas there is no comparable corporate office. For example, too few companies have an officer responsible for customers and their happiness. Marketers and Sales teams may be responsible for customer recruitment but what happens after the sale? Not every post-sale customer issue is a service issue and customer problems are not all selling opportunities.
Employees, customers, partners and local communities all want to know that the company they engage with isn’t actively discriminating against people, screwing customers, fouling the environment, or generally acting like some Gilded Age meatpacker. So, it’s becoming critical that corporations begin capturing data that’s relevant to all parts of the business and analyzed by leaders with expertise in specific areas. Our research bears this out.
For instance, employees who are given resources and encouragement to reach out to the community with philanthropic acts, are happier in their jobs, tend to stay longer in them, and are more likely to recommend their companies as places to work. They’re also more likely to recommend their companies’ products and services to others including through sharing on social media. Knowing this it’s easier to see that the behaviors we need to collect data on involve community outreach as opposed to simply surveying people about their happiness.
Many business leaders have boiled all of this down to the concept of corporate social responsibility (CSR). This isn’t a single issue but a category that reflects the awareness of a corporation’s various roles in society. The surest way to be mindful and to be able to take constructive action when needed, is to capture and analyze a larger universe of data that the corporation creates through its existence and its actions.
That’s why, as the corporation reaches out to the community and the marketplace, new information processing and reporting are coming into play. There are already organizations forming to address some or all of these issues.
Here are some useful links:
· A report on how corporate philanthropy fits into all this.
And some organizations:
· Impact Measurement Today — partnership among GRI, The Monitor Institute by Deloitte, and Salesforce.org.
· Impacting Responsibly — coalition of Candid (formerly Guidestar), the Urban Institute’s Center on Nonprofits and Philanthropy, New Philanthropy Capital, and Salesforce.org.
Stakeholder capitalism is a real thing and getting a handle on it means reporting and analysis which is why we’re seeing new interest in non-financial reporting. Most people would be forgiven for not jumping all over these ideas. But the few who get in early will no doubt be the ones to profit most from orienting more directly toward stakeholders.