In 1946, famed management professor and sociologist Peter Drucker penned the Concept of the Corporation. In it, he wrote that every business leader has two duties: “They are responsible and accountable for the performance of their institutions… They are responsible also, however, for the community as a whole.”
Drucker acknowledged that every company operates autonomously — like an instrument in an orchestra. “But there is also the score, the community. And only if each individual instrument contributes to the score is there music. Otherwise there is only noise,” Drucker explained.
Over the last two years, the importance of corporate citizenship has grown significantly. The pandemic forced workers to reevaluate how they spend their time and to look for a deeper sense of purpose — resulting in the Great Resignation. Leaders looking to retain top talent must make significant attempts to hit the new benchmarks today’s employees require — including more money, flexibility, and a greater social impact.
What Is Corporate Citizenship?
Corporate citizenship can be viewed in two ways. First, good corporate citizens aim to run businesses ethically and transparently. This can include sourcing raw materials responsibly, committing to inclusive hiring practices, and reducing the company’s carbon footprint.
Corporate citizenship also deals with organizations adopting policies that benefit society at large. This can include philanthropy, volunteering, and social responsibility.
In general, corporate citizenship aims to raise the standards of living and quality of life in the communities surrounding businesses, while maintaining profitability for stakeholders.
The Importance of Corporate Citizenship
You know that warm, fuzzy feeling you get when you do something good for others? Apply that do-good mentality to your business, and not only will the good vibes multiply, but also you’ll unlock a competitive advantage for your company.
Organizations that incorporate corporate citizenship into their overall strategy are more successful in achieving business goals and delivering value to the community. For instance, corporate volunteer programs can offer businesses lasting benefits, such as increased staff productivity, greater team performance, and lower absenteeism.
But keep in mind that a commitment to corporate citizenship doesn’t happen by chance. As a business owner, it’s up to you to prioritize ethical business practices and community involvement, weaving it into your company’s core values, culture, and code of ethics.
The Stages of Corporate Citizenship
According to the Boston College Center for Corporate Citizenship, companies evolve through various stages during the corporate citizenship journey. Initially, the focus is on complying with laws that ensure fundamental human rights and environmental standards. As a company matures, corporate citizenship activities become more ingrained into the brand’s DNA.
The Elementary stage — In the beginning phase, company resources may be limited. Therefore, little is done in the corporate citizenship arena besides complying with standard health, safety, and environmental protection laws.
The Engaged stage — At this stage, companies level up, developing policies that encourage employees to engage in corporate citizenship activities. Senior leadership often wakes up to society’s increasing expectations and begins to adopt a new outlook on the company’s role and responsibilities.
Companies at this stage are typically more reactive than proactive regarding emerging social and environmental issues — as was the case with Starbucks when the company commissioned a racial audit after a manager called the police on two Black men waiting to begin a business meeting at a cafe in 2018. The coffee chain closed thousands of locations for anti-bias training following its assessment.
The Innovative stage — Here, policies become more comprehensive, with broader agendas and deeper involvement from senior leadership. Companies at this stage also begin to assume more of a stewardship role.
A myriad of corporate citizenship-related programs are planned, funded, and launched. And the activities become more coordinated, focused, and strategic.
For example, Nvidia, a graphics chip company, sought to make an impact on several fronts during the pandemic.
The company committed to having no layoffs, and it moved up yearly performance reviews by nearly six months to offer salary increases to support employees. The company also continued paying vendors and contractors even while its offices were closed.
Additionally, NVIDIA’s chief scientist worked with colleagues at Stanford University to publish an open-source ventilator design, which costs about $400 to build versus $20k for standard models and uses readily available parts that can be 3D-printed.
The Integrated stage — At this phase, your corporate citizenship program is formalized. Many companies will have board-level citizenship committees in place to set standards and monitor your performance of citizenship activities.
For example, Ben & Jerry’s, an ice cream company with a taste for activism, has a leadership team that frequently speaks out on issues involving voting rights, racial justice, equality for the LGBTQ+ community, and more.
After it was acquired by Unilever in 2000, the company became one of the only Unilever-owned brands with an independent board of directors aimed at preserving and expanding the company’s social mission.
The Transforming stage — By this point, economic and social involvement have become a regular part of your company’s daily operations. Organizations at this stage are typically run by visionary leaders who consider themselves global citizens.
Take Microsoft’s leadership in energy conservation. In partnership with Volt Energy (a Black-owned solar company), the software giant is working toward using 100% renewable energy by 2025. By 2050, the company plans to offset all the carbon emissions it has produced since 1975.
10 Principles of Corporate Citizenship
In 2007, David Birch, a former professor at Melbourne’s Deakin University, wrote 10 principles of corporate citizenship, which argues that significant cultural change through corporate citizenship will only occur if companies implement policies and practices based on the following principles.
- Develop a company culture where everyone, regardless of role or status, has responsibilities beyond their specific jobs.
- Ensure that the business can engage in interactive (not just “transactive”) communication with its communities.
- Use local knowledge to enable the business to contribute beyond what is typically considered core business. For example, a retail store can offer its customers the option to contribute a percentage of their purchase to a local charity of their choice.
- View corporate citizenship as a bridge between your business and the communities it operates in. Create opportunities for employees to come together with customers and community residents.
- Go beyond compliance. Do more than what is expected of you.
- Empower the people involved in the business. Encourage your staff to pursue personal development goals outside of their job duties.
- Seek to influence cultural change in business through education, not mandates.
- Operate and think ethically. Every business decision should involve asking questions about its impact on others.
- Everyone involved in the business should have ownership of developments and practices that will encourage increased organizational citizenship.
- Ensure that everyone in the business can contribute to creating new value in some way and is recognized and rewarded for it.
The Benefits of Corporate Citizenship
Help attract investors
“Your business will undoubtedly gain more credibility with both present and potential investors if you can demonstrate a well-developed corporate citizenship program and efforts,” says Candice Moses, a chief marketing officer. “A company that takes corporate citizenship seriously conveys to partners and investors that it is interested in both short-term and long-term prosperity.”
Today, both individual and institutional investors seek out companies with a reputation for socially and environmentally responsible behavior. Bloomberg estimates that total assets under management using ESG strategies will reach $41T by the end of 2022.
Build trust with consumers
By showing that you’re willing to do the right thing, even when no one is watching, you build goodwill with your customers. Research from Adobe found that when people trust your brand, 71% will likely buy from you again.
Gain a competitive advantage
A 2021 sustainability study by Simon-Kucher & Partners revealed that 85% of people have shifted their purchasing behavior toward being more sustainable in the past five years.
“If you want to stand out from the competition, your company must demonstrate to the public that it is a force for good,” says Moses.
Attract top talent
“The upcoming workforce is looking for businesses that prioritize the triple bottom line of people, planet, and profit. In the modern workplace, culture, diversity, and high impact are given precedence over financial incentives,” says Moses.
Deloitte’s 2022 Millennial Survey reveals that 90% of Gen Zs and millennials are trying to reduce their environmental impact, and nearly half are putting pressure on their employers to take action. So, if you want to acquire the best talent, corporate citizenship is the way to go.
Improve employee morale
Once you get the best people through the door, you want them to stick around — it can take up to six months for an employer to break even on its investment in a new hire.
One way to keep employees motivated? Provide them with opportunities to give back. Research has shown a high level of correlation between employee volunteerism and employee engagement at work.
Create good PR
Brands that demonstrate concern for the environment, human rights, and other causes are often portrayed more positively in the media. Your company’s work on social issues may be covered in local, national, and global press outlets, which could increase brand awareness and boost sales.
However, businesses should be careful of doing good deeds solely for press coverage. If stakeholders begin to feel that your citizenship efforts aren’t genuine, they could backfire, causing employees, customers, and investors to lose trust in your brand.
Examples of Corporate Citizenship
There is no shortage of corporate citizenship stories among the wealthiest companies in the world. For example, Microsoft donated more than $410m in cash, technology, and resources to Covid response efforts.
Over the past two years, Shopify purchased carbon removal to eliminate shipping emissions from every order placed during the Black Friday/Cyber Monday shopping weekend, offsetting more than 120k tons of carbon. And Walmart’s Find-a-Future initiative helps veterans and military families transition to civilian life via employment, learning, and entrepreneurship opportunities.
Generally, the more resources you have, the more good you can do. However, if every business—big and small—did its part, the world would be a much better place. Below are a few examples of smaller companies making a big difference in their communities.
“We run a youth training program dubbed ‘The Future Is Remote’ in schools around Phoenix, with a special focus on those who want to join the tech world. Members of our staff volunteer to take students through the available opportunities in the tech industry and what channels they need to go through to succeed,” shares Katy Smith, product manager at AI meeting assistant Airgram.
“In 2019, we started an annual cultural event and a scholarship program for our employees’ children. Since then, $8.2k has been awarded as a scholarship to meritorious children,” says Dr. S.S. Nandal, CEO and director at textile manufacturer M.G. Creations. “Employee satisfaction and participation in the company's social events have increased, and their retention has become nearly 100%.”
Blue Label Labs
Jordan Gurrieri, co-founder & CEO at Blue Label Labs, turned his personal passion into a corporate citizenship initiative. “I enjoy racing and all the joys that come with owning and maintaining a track vehicle. I recently participated in a charity track day for a program called Camp Good Times, which raises funds for pediatric cancer families, and invited my staff to donate, which the company matched, for a total of $3k towards the event.”
Cane Bay Partners
Kirk Chewning and David Johnson have been engaged with US Virgin Islands communities ever since they launched fintech consulting firm Cane Bay Partners there in 2009.
“We’ve given back through hiring qualified local talent and establishing a charitable giving arm that focuses on giving towards education, crime prevention, and disaster recovery on the islands. Each year, we budget specifically for recurring giving to nonprofit organizations making a difference in the community,” says Chewning.
Employee morale increased among those who participate in community giving projects, and the firm gained recognition from local government officials. “We’ve also been able to attract top talent with interests in social responsibility because they’ve seen the causes we support and want to work for a company like ours,” shared Chewning.
“In our real estate business, corporate citizenship means creating social value as well as economic value,” says Jennifer Spinelli, founder and CEO of real estate investment firm Watson Buys. “We do this by supporting affordable housing initiatives, investing in green buildings, and more.”
At digital marketing firm Click Intelligence, diversity, inclusion, and green tech are three pillars of its corporate citizenship initiatives. The company’s internal and external operations are paperless, and its marketing campaigns include environment-friendly messages.
“For inclusivity and diversity, we are an equal opportunity hiring firm with dedicated seats for the physically disabled. We also make sure we have ethnic and racial diversity hiring across religions and races to develop a more holistic environment in the organization,” says company founder Simon Brisk.