CSR & Branding CSR & HR

1. CSR & BrandingCSR & HR MBA 292C-1 7 March 2007 Professor Kellie A. McElhaney

2. Tonight • Team Meetings Sign Up • Strategic CSR Issues Analysis • Who is doing what? • Who needs a team or a topic? • Projects Updates • CSR in the News • CSR & Branding • CSR & HR

3. Current News • Technology Firms Launch Group to Cut Industry's Electricity Usage • A group of 11 technology firms — representing 90 percent of computer system manufacturers in the world — have joined forces in a bid to cut the industry’s electricity usage. • The group called The Green Grid aims to tackle ways to make the “data center ecosystem” more energy efficient and has published three white papers on electricity use in data centers. • The firms involved include Advanced Micro Devices, Inc., Dell Inc., Hewlett-Packard Co. (HP), IBM Corp., Intel Corp., Microsoft Corp. and Sun Microsystems, Inc.

4. Current News • TXU Is Bought Out by Environmentally Minded Equity Firms • In a deal negotiated with U.S. environmental groups beforehand, Texas energy company TXU Corp. was acquired by two private equity firms, Kohlberg Kravis Roberts & Co. and Texas Pacific Group, in the largest private buyout ever of $45 billion. • The deal ensures that: TXU Corp. will cancel plans for eight of the 11 coal plants it had planned; TXU Corp. will back U.S. federal regulation of carbon emissions; TXU Corp. will create a “sustainable energy advisory board” with representatives of Environmental Defense (ED) and the Natural Resources Defense Council (NRDC); and TXU Corp. will “adopt corporate governance and executive compensation programs that tie the operations and goals of the company to climate stewardship.” • ED executive director Fred Krupp says, “I’ve been at Environmental Defense for 22 years, and I’ve never seen environmental issues play such a big role in a major transaction.” • NRDC Texas head Jim Marston, who was also part of the negotiations, says, “I didn’t want to kiss them on the lips in public, but this is exactly what we’ve been asking corporate America to do.”

5. Current News • Sanofi-Aventis to Make Malaria Pill Available At-Cost In partnership with Médecins Sans Frontières, French pharmaceutical firm Sanofi-Aventis has developed a simple malaria drug called ASAQ that will be available at-cost in several African countries. The treatment consists of two pills per day for three days for adults and costs less than U.S. $1. For children, the treatment consists of one pill per day for three days and will cost less than 50 cents. • Vodafone Wins U.K. ACCA Award for Best CSR Report U.K. telecommunications firm Vodafone Group plc has won the best U.K. CSR report award from the Association of Chartered Certified Accountants (ACCA). Vodafone’s report was noted for its clarity and readability and for disclosure on impacts of mobile phones on health, the economic value of technology and responsible use of content. • IKEA to Charge U.S. Customers for Plastic BagsSwedish retailer IKEA International A/S has announced it will charge 5 cents for disposable plastic bags in a bid to reduce the estimated 100 billion plastic bags thrown away by U.S. consumers per year. The price of IKEA’s 99-cent sturdier, reusable bags will be reduced to 59 cents to encourage their use. • Coca-Cola, Pepsi to Label Caffeine AmountU.S.-based soda makers The Coca-Cola Co. and PepsiCo, Inc. have announced they will include the amount of caffeine on their beverage labels in the United States.

6. Current News • Costly Red Campaign Reaps Meager $18 Million • Bono & Co. Spend up to $100 Million on Marketing • Julie Cordua, VP-marketing at Red and a former Motorola marketing exec and director-buzz marketing at Helio, said the outlay by the program's partners must be understood within the context of the campaign's goal: sustainability. "It's not a charity program of them writing a one-time check. It has to make good business sense for the company so the money will continue to flow to the Global Fund over time." She added that since many of Red's partners haven't closed their books yet on 2006, more funds likely will be added to the $18 million • There is a broadening concern that business is taking on the patina of philanthropy and crowding out philanthropic activity and even substituting for it," he said. "It benefits the for-profit partners much more than the charitable causes."

7. Using CSR as Branding Tool

8. Channel Selection MattersInternet growing strongly at expense of TV, Newspapers Source: Edelman Annual Trust Barometer, Jan 06 8

9. Using Non Traditional Channels Where do you go to learn about CSR for companies? Source: Fleishman-Hillard White Paper 2006

10. Employees As CSRBrand Ambassadors Source: Fleishman-Hillard White Paper 2006

11. Integration is Critical

12. There are risks… • Dow’s new Human Element Campaign • http://youtube.com/watch?v=i3byt7xMSCA • A redux on Bhopal: • http://youtube.com/watch?v=lbpuSPL-FNU

13. Part of an overall strategy Corporate Responsibility Marketing Toolbox Source: Adapted from Kotler and Lee 2005

14. Cause Marketing can stand apart from other efforts Demand on Resources Cause Marketing can have a high Social ROI relative to other efforts. Corporate Marketing Cause Marketing CSR Corporate Philanthropy Degree of Social Impact “An action through which a company markets an image, message, product, or service for mutual benefit.”

15. A Cause-Marketing Framework Global scale ad hoc Long term/Permanent Short term First world Third world Broad issue Business focused Public benefit Consumer benefit Engaging consumers Engaging employees High level action Product based action Partnership Lone Ranger Serious/Weighty issue Lighthearted/ Everyday Conservative Risky

16. Applying the Framework Global scale ad hoc Long term/Permanent Short term First world Third world Broad issue Business focused Public benefit Consumer benefit Engaging consumers Engaging employees High level action Product based action Partnership Lone Ranger Serious/ Weighty issue Lighthearted/ Everyday Issue Conservative Risky

17. Trust in global companies in decline (Consumer) Net Trust,* Decreases over Past Year, 2001–2005 Source: The 2002 data come from the Voice of the People survey, a collaboration between GlobeScan and Gallup International.

18. A Trust Discount for U.S. Brands Tell me how much you TRUST each company or organization to do what is right… ? 18 Source: Edelman Annual Trust Barometer, 2006

19. Opportunity to Link CSR to Drivers of Trust in Brand Source: Edelman Annual Trust Barometer, Jan 06 19

20. CSR is a powerful predictor of reputation…if known Emotional Appeal 1 Social Responsibility 3 Supports Good Causes Environmental Responsibility Community Responsibility Feel Good About Admire and Respect Trust ReputationQuotientSM (RQ) Vision & Leadership Products & Services 6 2 Market Opportunities Excellent Leadership Clear Vision for the Future High Quality Innovative Value for Money Stands Behind 4 5 Financial Performance Workplace Environment Outperforms Competitors Record of Profitability Low Risk Investment Growth Prospects Rewards Employees Fairly Good Place to Work Good Employees Source: C. Fombrun, Reputation Institute, Harris Interactive

21. CSR can lead to brand loyalty #2 tie #2 tie #3 #1 Source: “Rethinking Corporate Responsibility,” Fleishman-Hillard /National Consumers League, 2006

22. Importance of CSR in forming consumerimpressions is increasing Unprompted, First Mention, Trends: 1999–2005 Most Important Factors in Forming Impressions of Companies: Social Responsibilities

23. Consumers on ‘CSR Issues’ Source: Fleishman-Hillard White Paper 2006

24. Consumers on ‘Purchasing’ Source: Fleishman-Hillard White Paper 2006

25. Who Cares Most About CSR? • Females (employees, consumers, investors) • Gen Yers Ages 8-24 (cause focus) • Boomers (say v. do) • More educated • More diverse (gender, sexual orientation, ethnicity) • More affluent…..enter, Walmart!

26. The LOHAS Typology is the CR Industry Standard Lifestyles Of Health And Sustainability • LOHAS Consumer Segment Overview • Strong environmental and social values, and base many purchase decisions accordingly • Don’t just buy organic food or energy efficient appliances, they’re active in all LOHAS-related product categories • Demanding – “green” products are not enough; they need to feel, taste, and perform as well (or better) than conventional counterparts “As ‘green’ products make inroads among Wal-Mart’s budget-conscious masses, they are gathering cachet among an affluent new consumer category which marketers call LOHAS.” (7/17/06) Sources: The Natural Marketing Institute; Adler, Going Green.

27. The segmentation model… LOHAS: Profound sense of environmental and social responsibility, the most likely segment to buy a range of environmentally and socially responsible products. LOHAS = 60 Million U.S. Adult Consumers NOMADICS: The largest segment (nearly four in ten adults), less resolute in their LOHAS attitudes, still show moderate levels of related concern and select low-impact LOHAS behaviors. Indifferents 12% Indifferents 12% LOHAS 23% LOHAS 23% Centrists 27% Centrists 27% Total U.S. Population CENTRISTS: A lack of relevance in LOHAS attitudes becomes more evident. Nomadics 38% Nomadics 38% INDIFFERENTS: So disinterested that they do not even consider the environment or related platforms. Source: The Natural Marketing Institute

28. LOHAS are premium consumers Great Upside Potential for “cool” products LOHAS ≠ Tree Hugger • Demographics skew wealthy and educated • Value premium products and brands • Top 3 Activities to Protect Environment are basic: • Control thermostat (95%) • Recycle cans, bottles (85%) • Recycle Paper (84%) • Success hinges on compelling non-environmental benefits, such as function or status Sources: The Natural Marketing Institute; Ottman, Avoiding Green Marketing Myopia.

29. Case Study: Philips Lightbulbs • Philips called its original compact energy-efficient fluorescent (CFL) light "EarthLight" to communicate the bulbs' environmental advantage. • Benefit appealed to only a small green niche of consumers. • Reintroduced product in 2000 under the name "Marathon," to emphasize the bulb's five-year life and more than $20 in energy savings over the product's life span. • Repositioning the features into advantages that resonated with consumer values--convenience, ease-of-use, and credible cost savings--ultimately sparked an annual sales growth of 12% in a mature product market. Source: Ottman, Avoiding Green Marketing Myopia.

30. Another Ready Market Segment • Women are more likely than men to: • Volunteer in their local communities (VolunteerMatch; Corp. for National and Community Service) • Investigate a company’s environmental reputation before making a purchase (National Association of Women Business Owners) • Investin companies screened for different criteria including environmental practices, the hiring and promotion of women and minorities, labor practices and tobacco manufacture (Yankelovich Partners) • Purchase a product with a percentage of profit earmarked for charitable donation (Cone Research) • Participate in company sponsored social programs (Pfizer) • Be a member of Net Impact (Net Impact Membership data)

31. A Ready Market Segment • Women are more likely than men to: • Indicate that it is important to ensure that workers inside and outside the U.S. are paid a living wage(68 percent versus 57 percent). • Give corporations a “poor” rating for current CSR performance (18 percent versus 11 percent of men). Men are far more likely than women to rate companies as “excellent” or “good” (31 percent versus 13 percent, respectively). • Indicate that it is extremely important for companies to make relevant donations to charities and philanthropies(27 percent versus 19 percent, respectively). • Indicate that it is important to use workers in the U.S. to the fullest extent possible before hiring labor overseas(68 percent versus 54 percent). Source: Fleishman Hillard – National Consumers League Study, “Rethinking Corporate Social Responsibility,” 2006

32. Women’s power of the purse • Women make more than 80% of purchasing decisions in the United States • Women are less likely to act impulsively, and are more likely to do research and weigh information before making purchases Source: Faith Popcorn and Lys Marigold, 2000

33. CSR Branding Trends • Select consumer segments ready (LOHAS, women, Gen Y, LGBT) • Reporting does not equal communication • POS communication is critical • Blogs increasing in effectiveness • Simple messages, language • Use employees as ambassadors • Link to/ integrate with brand, all company messaging • Numbers increase credibility, but stories stick

34. Using CSR as an HR Tool

35. Employees: Very Interested- Participating in Company Community-Improvement Initiatives Source: Globescan 2005

36. Employees Care About CSR:Very Interested in Participating in Company Community-Improvement Initiatives Source: Globescan 2006

37. Employees are motivated by CSR activities Source: HP employee survey, June 2005

38. Employee Attraction, Retention, Satisfaction

39. Strategic thinker Integrity-based actions Ability to operate in 2 worlds simultaneously Sees possibilities where others see problems Works well across functions, collaboratively Proactively senses problems, acts Proactively senses opportunities, acts Ability to deal with complexity Confidence to take risks, learn from experiences Flexible Ability to deal with ambiguity, lack of facts Brings together disparate views, voices Persists in face of obstacles, challenges Short-term and long-term balanced Innovation Stakeholder engagement/ listening Skill Set of a CSR Expert

40. Leadership Skill Set Desired at J & J

41. What companies hire for… --2005 survey by Economist Intelligence Unit of characteristics sought by 225 senior executives

42. What BSR hears from their member companies… • “Our company doesn’t have anyone in-house with really good stakeholder engagement facilitation skills…” • “We increasingly need managers with a sophisticated understanding of public policy and international affairs…” • “Our management team needs assistance in taking a systems-thinking approach to new product design…” • “How should we define what environmental and social issues are ‘material’ to our company?” • “Who can help us work with other companies in our industry to reduce the costs of auditing our supply chain?” • “What would ethical decision-making criteria look like in this situation?”

43. Build CSR in to internal company messaging Make CSR part of employee value proposition Educate employees about CSR (integrate into in-house training) Work CSR out across business units Build CSR metrics in to performance appraisals Engage employees with CSR strategy, councils, programs Let employees communicate CSR; they are more believable CSR – HR = PR