Toward Corporate Change

Businesses seek nonprofit help in quest to become better citizens

General Motors, like other major car manufacturers, has faced plenty of pressure from environmental activists who want it to do more to reduce pollution.

But several years ago, GM

discovered an environmental group that didn’t want to protest. Instead, the group wanted to show the company not only how it could reduce the harmful chemical waste produced by its factories, but also how it could save money.

The Tellus Institute, a Boston organization started by five physics professors who wanted to apply their research to help businesses become better, more ecologically minded neighbors, showed GM how to curb its use of chemicals by 30 percent at its 60 North American factories, thus saving the company tens of millions of dollars since then and giving GM an accomplishment it could cite when its environmental record was criticized.

The GM–Tellus Institute pairing is one example of how a handful of nonprofit groups are working with businesses to help them become better employers, neighbors, and global citizens. The Tellus Institute and organizations like it frequently try to persuade companies that they can increase their profits at the same time.

“Tellus understands that there needs to be a bottom-line business case made for making changes, not just an environmental one,” says Patricia J. Beattie, director of chemical risk management at GM’s headquarters, in Troy, Mich.

Although small in size and number, organizations that work with businesses to help them become more ethically or environmentally accountable have grown in the past 10 years. By emphasizing a collaborative approach, the nonprofit groups are taking a different tack than organizations that have spent decades trying to change corporate behavior by mobilizing the public to participate in boycotts, demonstrations, and other publicity-winning activities, or those that have focused most of their energy on promoting stricter government regulation of businesses.

“Activism and things like social entrepreneurship only take us so far,” says Judith F. Samuelson, executive director of the Aspen Institute Initiative for Social Innovation Through Business, in New York, which promotes the teaching of ethics in business schools and discussions of corporate responsibility among executives. “We have to examine business, where it is today, and how we can change it so that it becomes a more positive player in the community and the world.”

Leaders of the new breed of groups that work with businesses concede their success has been slow — especially because few have been able to raise enough money to work on a large scale. But many of them think the corporate scandals of the past year might well make it easier for groups that collaborate with business to raise their profiles and push their agendas. What’s more, they say the campaigns waged by protest groups have made companies more willing to listen to groups proposing concrete ideas for changing how businesses operate.

“Companies are looking to be better corporate actors across the board now,” says Michel Gelobter, executive director of Redefining Progress, a group in Oakland that measures companies’ effects on the environment and shows them how they can improve their ecological performance.

A recent survey of business leaders backs up Mr. Gelobter’s assertion. Three out of four executives say they plan to begin issuing reports that measure their performance as corporate citizens within the next five years, according to a survey of 130 companies released in August by PricewaterhouseCoopers, an accounting company in New York. Currently, only one in three companies publishes such reports.

But not all of the leaders of business-responsibility groups are so sanguine. The Aspen Institute Initiative for Social Innovation Through Business, for example, was started in 1998 to teach corporate executives and students in business schools techniques for weighing how a company’s activities influence society, and to show them how they can combine bottom-line realities with activities that benefit the common good. But as the scandals of the past year have made many people more cynical about the ability of business to police itself, it is harder for Aspen to argue the case that working with businesses will help companies become more ethical. “It’s very tricky in the current climate,” says Ms. Samuelson.

Ms. Samuelson adds that it has always been a struggle to persuade corporate executives to focus on social concerns. “It’s a tall order,” she says, “because most business leaders think it’s hard enough to create jobs and stay alive.”

Foundation for Change

As leaders of corporate-responsibility groups weigh what has worked so far, many say they believe that they have helped companies to look broadly at how their activities affect workers, neighborhoods, and the ecology — and to go well beyond simply measuring good citizenship by looking at how many dollars a company gave to charitable causes.

Robert H. Dunn, chief executive of Business for Social Responsibility, a San Francisco organization started a decade ago, says that in the past, corporate citizenship “was a marginalized area limited to corporations and their philanthropy, not how corporations should use all of their resources for the common good.”

Today, he says, his group, which has 1,500 business members and an annual budget of $8-million, focuses on matters as varied as the diversity of management and boards, strengthening business’s codes of conduct, and making sure drinking water in Asian countries is not polluted by textile factories operated by companies based in the United States and elsewhere.

Mr. Dunn says he is sometimes frustrated that groups like his haven’t been able to accomplish more. “I see little evidence of systemic change,” he says. But, he says, he believes that his group and others have made numerous small accomplishments that have laid a foundation for corporate change.

Among the signs of success that Mr. Dunn and others point to:

• An effort led by Business for Social Responsibility and customers of international shippers to encourage rail and shipping companies to improve their energy efficiency, lower emissions of air pollutants, and reduce the number of potentially harmful aquatic species shipped from one region of the world to another. Shipping accounts for 30 percent of the world’s emissions of pollutants from transportation, Mr. Dunn says. Ikea, Nike, Chiquita Brands, and Coca-Cola are among the companies that have joined the effort to persuade cargo carriers to change the way they operate.
• The development of the Global Reporting Initiative, which was formed with the help of several business-responsibility groups to create guidelines on the economic, environmental, and social performance of corporations. The Tellus Institute organized a group last year to standardize the reporting of corporate information to the program. Currently, more than 2,000 companies voluntarily report on their emissions of pollutants, labor practices, and human-rights records, among other factors that fall under the rubric of corporate responsibility.
• The purchase of gases from landfills being sold to several companies, including Johnson & Johnson and IBM. Nearly 20 megawatts of renewable energy have been sold to companies in the past four months after the World Resources Institute, an environmental think tank, began to work with corporations to show them the financial and environmental benefits of increasing their use of renewable energy sources.

Courting Companies

Organizations that hope to create social and environmental change have a variety of motivations and approaches.

Paul Faeth, executive vice president of the World Resources Institute, says the organization began to court leaders of multinational businesses in earnest in 1996 after becoming frustrated by the lack of interest from governments in such issues as climate change, greenhouse-gas emissions, and the use of renewable energy sources. Since then, the group, which was formed in 1982, has used much of its annual budget of $19-million to conduct research on environmental topics. Much of it is done in collaboration with businesses, such as DuPont, Shell Oil, and the Ford Motor Company.

“We looked to business because they control the economic levers of the world,” says Mr. Faeth.

The approach of working with business is not without risk, he says. “Sometimes, we have to partner with groups who disagree with us,” Mr. Faeth says. Businesses, even those that do not have sterling environmental records, must take part in the research, Mr. Faeth says, so they will take responsibility for what they do with it.

Tom Votta, senior scientist at Tellus Institute, says that the organization’s collaborations with industry have grown as companies have begun to search for different ways to deal with environmental problems. “Things have gone beyond merely complying with environmental regulations now,” Mr. Votta says, “which means there’s more of a call for the kind of work we do.”

Tomorrow’s Leaders

Several groups are focusing on the business leaders of tomorrow, not simply trying to influence those who run corporations today.

Ms. Samuelson, of the Aspen Institute’s initiative, hopes that her group can reach future managers by lecturing, conducting surveys (in collaboration with the World Resources Institute) at the nation’s major business schools, and underwriting ethics-based research projects. So far, her group is working with 25 business schools based at large colleges and universities.

She says her group is trying to change the way ethics lessons are offered so that they are integrated into business decision making. Now, she says, too many schools teach ethics as something separate from day-to-day management. Many schools, she says, emphasize that “short-term profits are the benchmark, not the community writ large.”

Leaders of groups that take a different approach to corporate change, such as waging large-scale protests, say they are glad some groups have begun to collaborate more closely with businesses and future business leaders.

John W. Passacantando, executive director of Greenpeace USA, says that advocacy groups are only one part of the formula for making the corporate world change. “You need a whole spectrum of approaches,” Mr. Passacantando says. “We need groups pushing on the inside, just as Greenpeace pushes from outside.”

Dearth of Grant Money

Ms. Samuelson says she first became interested in corporations and ethics when, as a former Ford Foundation program director, she wondered why there were so few collaborations between nonprofit groups and private businesses, and why foundations seemed loath to support efforts involving businesses.

Although her group was started with the help of a three-year, $2.8-million grant by the Ford Foundation — the foundation followed up with a three-year, $4-million grant in 2001 — a dearth of private foundation money has had an effect on the growth and impact of organizations that work with businesses on improving their accountability.

“What we tend to hear from foundations is, ‘Well, if this is business’s problem, let business pay for handling it,’” says Ms. Samuelson, whose group has an annual budget of $1.6-million.

But that approach does not sit well with some groups, which say that corporate-responsibility groups cannot accept donations from business without jeopardizing their credibility.

As a result, many of the business groups accept money only from private foundations or government contracts. Others charge companies fees for services they provide, such as the work Tellus did with GM, but won’t accept philanthropic gifts from companies.

Even if groups decide that it is ethical to accept money from corporations for their work, few nonprofit officials expect that corporations will ever pour a lot of money into business-responsibility groups.

“Businesses and corporate foundations will nickel-and-dime us on this issue,” says Ms. Samuelson, whose group has received around $200,000 annually from companies. “For corporate foundations, $25,000 is a large grant, and it may only come once. We need players who will take a longer-term view toward supporting our work, such as those in private philanthropy.”

Several large foundations, including the John D. and Catherine T. MacArthur Foundation, in Chicago, and Ford have made grants to such groups.

The Nathan Cummings Foundation, in New York, will allot 25 percent of the $20-million it gives away this year to groups that promote ecologically sensitive businesses or work with companies to improve their practices, says Lance E. Lindblom, the grant maker’s president. But he says other foundations are less willing to commit to such grants, and he speculates that that is because so many trustees are corporate executives.

“Because many foundations can’t transcend the parochial interests of wealth on their own boards, they don’t make grants that would develop countervailing powers to those of corporations,” Mr. Lindblom says.

Rick Cohen, president of the National Committee for Responsive Philanthropy, in Washington, a group that encourages more foundation giving to organizations that promote social change, says foundations should ensure that groups that help businesses improve their accountability proliferate.

“What these groups are doing is admirable, but do they have enough clout to change the structures behind corporate accountability?” Mr. Cohen says. “The real question is, are there enough of these groups to make a difference?”

Mr. Cohen argues that private foundations of all sizes should make corporate accountability their business. Expecting corporations to police themselves or make the changes necessary to make them solid global citizens is largely futile, he says.

“Historically, the idea that a sector can fix itself is wrong,” Mr. Cohen says. “Foundations should accept this as a challenge because this is a major societal issue.”