CSR

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Boardroom Briefing
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B o A R D R o o m B R i E f i N g : C o R p o R A t E S o C i A l R E S p o N S i B i l i t y
Whats Fair, and Whats the Bottom Line? ........................................................ 4
James Kristie
A New Business Model for the 21st Century ...................................................... 6
Bradley K. Googins
CSR: Is it Corporate Irresponsibility? ............................................................. 8
Betsy S. Atkins
From Shareholders to Stakeholders: the Corporate Boards Newest Challenge .... 10
Deborah Talbot
Corporate Social Responsibility Strategy and Boards of Directors .....................12
Herman B. Dutch Leonard and V. Kasturi Kash Rangan
Practicing Social Responsibility from the Heart ............................................... 16
Bonnie W. Gwin and Torrey N. Foster
The Directors & Boards Survey: Corporate Social Responsibility .......................20
Critical Issues 2007 .........................................................................................23
Legacy Programs and Director Independence ..............................................24
Douglas Raymond
Climate Change and Investment .................................................................26
By Julie Fox Gorte
Is Your Corporate Reputation a Liability On Your Balance Sheet? ......................32
By Deborah E. Wallace
Philanthropy Becomes Strategic ......................................................................34
Mary Donohue and Ken Neal
Creating a Culture of Responsibility ................................................................36
Tom Krause and John Balkcom
How Communities Beneft From Corporate Social Responsibility ......................40
James C. Hood
Boardroom Briefing
Vol. , No. 4
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4 B o A R D R o o m B R i E f i N g : C o R p o R A t E S o C i A l R E S p o N S i B i l i t y
W
hen I
read the
words or
hear the term
corporate social
responsibility,
what I often
sense is that the
term is code for
the question,
Whose company is it anyway?
Whose company, indeed? Is the
company simply a pass-through
mechanism to process incoming
revenue for return to the owners in
share appreciation and dividends?
Or is the company a citizen of the
society in which it does business,
with a responsibility to be right
thinking to its various stakeholders
the employees, community, suppliers,
and others beyond the core owner
constituency? The shareholders vs.
stakeholders theory, in stripped
down form.
Talk about stripped down.
Remember Al Dunlap? For a brief
shining moment he electrifed the
capital markets with his gonzo
shareholder supremacy theory.
Here is vintage Dunlapian CSR as it
appeared in the pages of Directors &
Boards in a mid-1990s edition:
The one fact of life that is grossly
overlooked is that the shareholders
own the company. It is unbelievable
how boards and executives ignore
this reality. Shareholders take all
the risk. The company that gives
the shareholders back their money
is a company that can ignore the
shareholder. Otherwise, shareholders
are who you work for. They are the
No. 1 constituency. Show me an
annual report that lists six or seven
constituencies and Ill show you a
mismanaged company.
Thats the one school of thought, and
it has its compelling logic and strong
adherents. Now for an on the other
hand interpretation of CSR. I was
always taken with a story that Robert
Mercer, a retired (after 42 years with
the company) chairman of Goodyear
Tire and Rubber Co. recounted in our
pages. Its a good one:
The driver of a Goodyear truck
was at fault in a traffc accident in
Washington, D.C. His truck hit a
restored Volvo driven by a woman who
had been widowed just two weeks
earlier. Her late husband had spent a
great deal of time restoring the car.
The traditional knee-jerk procedures
went into effect, and the widow was
contacted by our insurance carrier.
The contact was an impersonal knock
on the door, by a guy who handed her
a check for $500, the Blue Book value
of the old Volvo. No consideration
was given to the intrinsic or the
sentimental value of the car.
Fortunately, one of our guys
noticed what had happened. Our
employee felt uncomfortable about
the fairness of the settlement, so he
contacted headquarters and explained
the story. He was told to buy the
woman a new Volvo.
None of us knew the woman or any
information beyond the facts of the
story, and it was all but forgotten
when, two months later, I was
approached by a congressman. He
introduced himself, then continued
to say that he was impressed with
Goodyear. He described us as a
very humane company, and I was
compelled to ask how he had formed
that opinion. He relayed the story of
the wrecked Volvo and the widow
whose father, it turns out, had been
a government offcial. And he added
that the story had circulated across
Capitol Hill with a great deal of
positive reaction.
I was delighted to fnd reinforcement
for a decision based on fairness,
not just on the bottom line. No one
knows how far this example may
have reached.
Its still reaching out there, thanks to
my dusting it off for this Boardroom
Briefng in which we explore the nature
of corporate social responsibility in
the 21st centurywhat it is and how it
should be practiced.
Do we want a world run by the
Dunlapian code of shareholder
supremacy? When the Blue Book
i.e., the bottom line, the strict
fduciary obligationreigns supreme,
there would be no new Volvo to
soothe a wronged widow. Or do we
want a world where the shareholders
return gets trimmed in the cause of
fair dealing and societal obligation?
Or can we have both?
James Kristie is editor and associate publisher
of Directors & Boards. He can be contacted at
jkristie@directorsandboards.com.
James Kristie

Whats fair, and Whats the Bottom line?
By James Kristie
Beyond the Blue Bookor not. Corporate social responsibility enters an era of investor activism.
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Minding your business... Minding your business...
... or peace of mind?

L
ike it
or not,
business is
being pulled
into social
issues and
public debates
most would
prefer to avoid.
Gone are the
days when the private sector was
expected to simply create jobs,
deliver goods and services, increase
shareholder wealth, and demonstrate
goodwill to the community through
philanthropy.
While few executives are seeking
airtime to spread this message, many
recently shared these opinions with
the Center for Corporate Citizenship
at Boston College as part of a
research project exploring the role of
business in 21st century society. We
interviewed 48 senior executives, a
majority CEOs, representing a wide
array of multinational companies
including Citigroup, IBM, GE,
Raytheon, Nestle, Ernst & Young,
Baxter International.
The research clearly shows that
leaders of successful companies
recognize the Milton Friedman
business model has lost its relevance
in the 21st century. While some
still hold onto it for a sense of
security, most responsibleand
successfulleaders know business
cannot succeed if society fails. Some
71 percent of those interviewed said
that societal issuesfrom climate
change, health care, pension reform,
income disparitypose challenges
to their business success. Over half
talked about managing their social
impact as an asset, and nearly all
refute the concept that short-term
proft maximization is a companys
single virtue.
Jeffrey Immelt, GEs Chairman and
CEO told the Center: Profts are
created by businesses that are doing
things that ultimately have real
societal benefts. And businesses
have not done a good job describing
that. Immelts comments are
clearly refected in GEs innovative
ecomagination initiative.
a new Reality is emerging
As the old business model cracks,
a new reality is emerging as more
companiesincluding those small
and locally-basedrealize they are
managing in a global marketplace
that involves a complexity that
requires they focus far beyond
traditional shareholders. IBM
Chairman and CEO Sam Palmisano
described this new reality: What
is different about business now is
that the concept of shareholders has
changed to stakeholders.
The challenge at the top tier of
business is to engage in public
debates in a manner that refects the
new role of business and its bottom-
line interests. Leading companies
that are doing this well are clear
about why they are participating
in these issues and are proactively
infuencing the agenda and
conditions by which they participate.
Companies need to commit to smart
and selective engagement with the
many individuals, community-based
organizations and advocacy groups
that expect them to address
societal issues.
Part of the new reality for business
is a result of the changing role and
capacity of government worldwide.
As governments downsize and are
pressured to privatize many public
services, many are recognizing
that business has the competencies,
resources and infrastructure to help
meet societal challengesthis was
magnifed when Hurricane Katrina
hit the Gulf region. The question now
is not so much what business has to
offer, but where should be the limits
to what it does and how it acts.
Companies wanted a freer hand
in terms of government regulation,
and restrictions on their business
activities. And I think with that
freer hand comes an obligation.
You cant ask for one and not
deliver on the other, said James S.
Turley, Chairman and CEO of Ernst
& Young.
The investment community has no sense
of social responsibility. And when I say no sense,
I cant use smaller words than that.
Bradley K. Googins

A New Business model for the 21st Century
By Bradley K. Googins
Most responsibleand successfulleaders know business cannot succeed if society fails
B o A R D R o o m B R i E f i N g : C o R p o R A t E S o C i A l R E S p o N S i B i l i t y 7
The Barriers of Short-Termism
As business leaders try to sort out
their long-term responsibilities to
society, they are often confronted by
the conficting short-term demands of
investors. The investment community
was cited by a majority of executives
interviewed as a signifcant obstacle
for their company to engage with the
new socio-economic realities of the
business environment.
The mark of a truly successful
business is one that takes into
consideration the views of Wall Street
and investors and analysts as but one
vector. They are an important vector
that has to be considered, but its
only one vector out of all the others
you must consider and balance, said
InBev CEO John Brock.
However, they also say its a cop out
to place all the blame on investors.
Many said they are beginning to
communicate the changing climate
to investors, and especially the
all-important sell-side analysts.
But there is a long way to go. The
investment community has no sense
of social responsibility. And when
I say no sense, I cant use smaller
words than that, said Citigroup
Chairman and CEO Charles Prince.
It will take concerted, persistent
effort to persuade investors to think
in terms of proft optimization
rather than maximization, and
for companies to treat the need to
produce profts not as an end, but
a signal that companies are doing
what society wants.
a Soft-landing to Globalization
The most dominant driver of
the changing business-society
relationship is globalization. While
it has brought great benefts to
business, it has also introduced
new risks and uncertainty. Getting
involved in dealing with the
consequences of globalization is
one area where business can fnd
solutions to societal expectations
and communicate a consistent
message about its role in society.
Business doesnt have to take this
on alone: creating a soft landing
to globalization lends itself to
partnerships with government and
civil society. The solutions are often
ones that enhance reputation, create
new business opportunities, and build
public trust. And whats more they
arent about turning back the clock.
Sixty-fve percent of the worlds
wealth is here in the United States,
said Phil Marineau, former President
and CEO of Levi Strauss & Co. Were
watching it being redistributed
before our eyes. How do companies
participate in a way that is consistent
with their values, and that earns
peoples trust? To provide this soft
landing a company should consider
providing a benefts package that
helps workers and their families
thrive, looking for ways to keep
employees skills relevant in the job
market. These approaches require a
company to acknowledge the old
(continued on page 42)
It will take concerted, persistent efort
to persuade investors to think in terms of
proft optimization rather than maximization.
T
he concept
of corporate
social
responsibility
is one that
deserves to
be challenged
and examined
carefully. It
is absolutely
correct to expect that corporations
should not be irresponsible and
should comply with all laws and
regulations, creating quality products,
marketed in an ethical manner, in
compliance with laws and regulations
with fnancials represented in
an honest transparent way to the
shareholders. However, the notion that
the corporation should apply its assets
for social purposes rather than for the
proft of its ownersthe shareholders
is an irresponsible use of assets.
The board of directors, on behalf of the
stockholders, has responsibility to hire
the CEO (and executive management)
and oversee and measure them on
the profts that they achieve. The
shareholders can certainly spend
their own money/assets on socially
responsible charities that promote
causes they believe in. However, if the
CEO and executive management team
of the corporations whose stock the
investors purchased decides to deploy
corporate assets for social causes, this
would not be responsible.
Would You pay More?
A real litmus test of the market for
social responsibility (defned as social
causes) by a corporation could certainly
be tested. Apple Corporation, for
example, could have an iPod for $99
and the same iPod for $125. The more
expensive iPod could be designated
so that the extra $25 would be used
for specifc social causes, such as
retraining hard core unemployables,
donating to causes to lower pollution,
etc. This market test would be a clear
and an honest way of accounting for
the shareholders money. This would
allow the market to decide and drive
the outcome. If there are enough
consumers who wanted to pay the extra
$25, those consumers could do so.

A questionable use of corporate
assets would be for a corporation
to invest the shareholders money
in a social cause such as lowering
environmental pollution by building
a green corporate headquarters that
cost an extra $100 million. This is
not a responsible use of shareholders
money. In fact, it is irresponsible and
deceptive. The corporation hasnt
asked the shareholders permission if
they want their assets spent this way.
Management is charged with making
informed decisions to invest corporate
assets for the highest and best use,
to achieve corporate goals of growth,
proftability, product innovation, etc.
to drive a return on investment for
the shareholders. What measurable
outcome could such a management
re-deployment of corporate assets for
a Green Headquarters have?
It is the private individuals choice and
right to decide to support charities
and social causes they believe in.
I do not believe that the investing
public considers their for-proft public
corporate investments to be part of
their social charitable causes.
pc Rhetoric
There are practical reasons why
corporations should cloak themselves
in the current politically correct
rhetoric of social responsibility. But
this marketing cloakware should
not be confused with an actual
signifcant redeployment of corporate
assets. One can look at British
Petroleums marketing efforts, which
is all about being a green company.
This makes the consuming public
feel good about purchasing British
Petroleum products. Corporations
should want their consuming and our
investing public to feel good about its
market messaging. However, dont be
confused: if British Petroleum were to
redeploy billions of dollars of corporate
assets into nonproft yielding social
investments and the stock plummeted,
one can certainly expect that the
investing public would transfer its
investments to BPs competitors.
We should not confuse the rhetoric
and parlance of social responsibility.
What the investing and consuming public expects of its for-
proft public corporations is that they not be irresponsible.
Betsy S. Atkins

CSR: is it Corporate irresponsibility?
By Betsy S. Atkins
I do not believe that the investing public considers their for-proft public corporate investments
to be part of their social charitable causes.
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1 0 B o A R D R o o m B R i E f i N g : C o R p o R A t E S o C i A l R E S p o N S i B i l i t y
M
aking
money
making
lots of moneyis surely central to
why corporations exist. But more
and more these days it appears that
corporations are being challenged to
do more, to be more. And in many
cases it is the shareholder, the very
constituent who elects corporate
directors, who is raising the bar.
Corporate social responsibility is the
term most often used to describe an
evolving dialog that seeks to expand
the role of the corporation beyond
the economic frame to include
social and environmental aspects
of community. Of course, there are
many on both sides of the board
table who believe if we make money,
we are being socially responsible
by providing jobs and economic
value to the community. If we keep
shareholders happy, then we have a
successful enterprise.
However, broadening accountability
beyond shareholders to include
employees, customers, suppliers,
competitors and the community
signifcantly challenges not only
the values of the corporation but
the boards role in overseeing this
accountability shift. CSR goes
beyond philanthropy. It is not so
much about giving back but
making right. It is about corporate
sustainabilityoperating in such
a way that sustains the health,
viability and relevance of all who
have a stake.
Broadly stated, CSR refects a
concern for the three Ps: profts,
people (employees, customer and
citizens) and place (environment
and community). By no means
is proftability of the corporation
set aside but rather supplemented
by additional considerations that
go beyond fnancial success.
Furthermore, while socially
responsible action may initially
reduce profts, many corporations
are fnding that it may also create
new opportunities for adding to
profts and/or reduce a greater threat
of operating losses due to legal/
regulatory actions or loss of favor in
the marketplace.
How Did cSR come to Be?
CSR derives from a broader
emerging aspect of our culture
where huge societal issues of
sustainability are emerging--not just
natural sustainability or the health
of our planet but also such nagging
problems as education, the aging
workforce, healthcare and related
wellness issues, and an underlying
loss of community.
What are a corporations
responsibilities for generating social,
not fnancial, capital? What are
some of the consequences of CSR?
How can its success be measured?
To understand some of these
questions, lets look at what some
companies are doing under the
CSR umbrella. Disney recently
announced it would no longer
contribute to childrens obesity
by gracing high fat/sugar content
food with its colorful characters.
Lucrative licensing deals with
companies such as McDonalds,
Coca Cola and Kellogg will not be
renewed if their products do not
meet the new guidelines issued by
Disney. Furthermore, Disney has set
a goal to remove all trans fat from
their theme parks by 2007 and their
licensed products by 2008. None of
these decisions is going to seriously
threaten the proftability of Disney.
They are being made over time in
a planned process and somewhat
in response to actions taken by
competitors, activists and the
collective action of their management
and board in assessing the espoused
values of the Disney corporation.
Nor is this the extent of Disneys CSR
effortsthey are developing a cogent
and effective story on responsible
corporate enterprise that matches
their corporate values/mission.
The growing customer preference for doing business with
companies who make right may indeed spawn
one of business most creative/innovative periods.
Deborah Talbot
from Shareholders to Stakeholders:
the Corporate Boards Newest Challenge
By Deborah Talbot
CSR goes beyond philanthropy. It is not so much about giving back but making right.
B o A R D R o o m B R i E f i N g : C o R p o R A t E S o C i A l R E S p o N S i B i l i t y 1 1
Philips is focused not only on
environmental sustainability
reducing the level of energy in their
lighting products and servicesbut
also on changing the way people
interact with their products in order
to reduce harmful side effects. By
working with children, their parents
and the centers that operate their
medical equipment, Philips has
created special effects that reduce
the fear and trepidation of medical
scanning devices, reducing by
over 30% the number of children
requiring sedation. One of Philips
core values is innovation and they
use their 450-person design unit
to create business opportunities
that support their social and
environmental values.
The Boards Role
What should the boards role be in
the realm of CSR? Get involved. Do
not let CSR become a side issue to be
addressed outside the main business
channel. To do so will, in the long
run, prove more costly and seriously
deter credible, creative business
development. Social responsibility
needs to be addressed within the
business planning process of the
corporation or opportunities to
improve the bottom line will be lost.
Develop a Scorecard for CSR
oversight. The scorecard would be
unique to each corporation and
developed jointly with management
and should consider the following:
Values Review. Review with
management the corporations
values as set out in various corporate
documents and align values
with performance. Expand the
values/mission of the corporation
as necessary to address proft,
people and place. Play upon the
corporations competitive strengths in
expanding the business paradigm.
Do No Harm. This is a challenging
principle for corporations to address
what are the consequences of the
products/services we sell and the
business practices we embody? Can
we defend these products/practices in
a growing climate of accountability
that includes environmental and
business sustainability as well as
community well-being?
Transition Accounting. Ask
management to propose measures
to offset or complement current
fnancial measuresboth internally
and within the external community
of analysts and investors. Some
corporations have developed a
sustainability or CSR annual report
that supplements their fnancial
reporting. Focus on innovative ideas/
design for better business which
generally warrant new measures.
Long-term CSR Plan. Work with
management on developing a
comprehensive long-term plan to
address where the corporation wants
to go relative to this expanded
accountability.
Do not be put off by the evolving
nature of this movement
understand that goals may shift as
technology and business practice
evolves. Develop your own corporate
storydo not let the marketplace or
outside forces dictate your story.
Also do not assume that if you
ignore it, CSR will go away. Your
response to CSR may not only
allow the business to avoid costly
reactionary measures and possible
regulatory/legal actions but
may indeed enrich the corporate
coffers through innovative design
and differentiation. The growing
customer preference for doing
business with companies who
make right may indeed spawn
one of business most creative/
innovative periods.
Dr. Deborah Talbot is a strategic consultant,
independent director and social entrepreneur
based in Tampa, Florida. A former senior executive
at JPMorgan Chase, she has served boards in
fnancial services, education, and not-for-profts
in a variety of capacities. Dr. Talbot is currently
writing a book based upon her doctoral research
that examines a new model of capitalism. She can
be reached by e-mail at dtalbot13@mac.com.
C
ompanies
today face
increasing
demands for
corporate
social
responsibility
(CSR).
Correspondingly,
they have
important new
opportunities to
build business
value through
judicious
choices and actions to improve
social and environmental conditions
in the communities in which they
do business. Whereas frms once
might have been able to prosper
by concerning themselves almost
exclusively with fnancial results,
most now fnd it at least prudent
and many are fnding it directly
valuableto manage a wider array
of the impacts that they generate (or
can infuence), from environmental
conditions to employee health and
safety to social conditions like the
quality of public education.
How can boards best organize
themselves and act so as to add
perspective and value in these
matters? First, they must develop the
capacity to examine and evaluate
individual CSR-oriented actions,
a process that requires both an
understanding of the motivation
behind them and an assessment
of their impact on society and on
the frm. Second, they need to
ensure that the frms CSR activities
constitute a coherent and effective
CSR strategy. Third, they have to see
to it that their frms CSR strategy
and decision-making are integrated
into the companys overall strategy.
Start with the
Softest investments,
and Build Your Way out
Generally, it is not a good idea to
start by reviewing all CSR efforts
at once. Firms engage in a variety
of activities in manufacturing, in
their supply chain, and in cause
marketing that already commands
the attention of appropriate
operational leaders. Detailed
oversight by directors may be
unwarranted, and will likely be
unwelcome. Instead, directors
should frst examine the things
in which they are most directly
involved: the frms charitable
activities, especially its largest ones.
Most companies engage in some
form of philanthropic activity
either through direct donations
or a corporate foundation. Look
especially carefully at the soft
activities that do not mesh with
the business activities of the frm,
either on the input or the output
side. See whether and how they
are supposed to generate value for
the frm. Is there a reason why we
should support these activities? Are
we more interested in these specifc
social benefts than others, or in
a better position to help promote
them because of our position in the
industry or our connections in the
supply chain, both upstream with
suppliers and downstream with
customers? Or are there, instead,
other activities that make more
sense for us to support?
This is an area where a board can
add value. Most companies engage in
a variety of unconnected charitable
activities at the behest of one senior
leader or another, somehow hoping
that in the long run, this will
embellish the companys reputation.
It is the boards job to bring
coherence to these investments
frst, because it is their fduciary
responsibility, but more importantly
because they can bring a visionary
assessment of how such activities,
when properly integrated, can deliver
future value for the frm.
Next, check out your core business
processes to identify their
larger social consequences. For
example, inquire whether your
manufacturing processes could
Herman B. DutchLeonard
Corporate Social Responsibility Strategy
and Boards of Directors
By Herman B. Dutch Leonard and V. Kasturi Kash Rangan
How can boards best organize themselves and act so as to add perspective and value with CSR?
V. Kasturi KashRangan
Detailed oversight by directors may be unwarranted,
and will likely be unwelcome.
be made more effcient to reduce
waste and environmental impact
(and, simultaneously, your costs),
and whether your products can be
designed to use less packaging or
be more readily recyclable. Much of
the homework on this audit should
already have been done by the
operational managers. The boards
role here is simply to ensure that the
pieces of the puzzle are put together,
enabling it to see and shape the
frms larger CSR strategy.
Finally, work your way out from
the center of your own activities,
in two directions: up your supply
chain to vendors, and down your
value chain to customers. Make
sure management has looked at its
purchases of raw materials. Are
they sustainably harvested? Would
it make sense for the company
to work with its suppliers to help
them address working conditions
in their factories in ways that
would also improve worker morale
and productivity (and thus, not
incidentally, lower costs)? Can you
work with your customers to reclaim
and recycle parts of your products
after theyve been consumed? Are
your cause marketing programs and
community relations activities truly
building your brand?
examining individual
philanthropy-related
actions and activities
To judge the merits of individual
CSR-related programs or activities,
board members must understand
their basic purpose. Directors can
begin by recognizing the various
reasons why companies might
engage in activities that, in the frst
instance, create social value rather
than directly produce fnancial
results. One reason may be a sense
of moral obligationbecause
Most companies engage in a variety of
unconnected charitable activities at the behest
of one senior leader or another, somehow hoping
that in the long run, this will embellish the
companys reputation.
they (and/or their shareholders,
managers, and fellow directors)
believe it is the right thing to
do. When there is an important
social problem (such as 9/11 or the
aftermath of Katrina), and the frm
is in a good position to do something
about it, the frms owners and
leaders may agree that they want to
take action simply out of a sense of
moral concern.
Moral obligations aside, companies
more commonly act on social
matters because they see a business
case for social response. They believe
that, in either the short or longer run,
such a strategy will produce direct
benefts for the frmas, for example,
with efforts to reduce environmental
impact, which improve production
effciency, eliminate waste, and
reduce input costsor will result in
indirect advantages (whose benefts
may take longer to recognize). For
instance, a program that allows
employees paid time to volunteer
in local nonproft activities may
build support in the community that
might later improve opportunities
for getting more favorable regulatory
treatment from local offcials.
In contrast, we fnd that frms are
often vague about why they are
pursuing specifc activities. When
asked, they can say little more than
that it seemed like a good idea or
that they felt that they should do
something. Our view is that the
more explicit they can be about their
intentions, the more likely they are
to achieve real resultsfor society
and for the frm.
If the intent of the program is (at
least in part) to generate value
for the frm, boards should also
examine whether a given action
is basically defensive or is part
of a strategy to create new value.
Businesses can pursue CSR actions
either to protect existing value (for
example, to keep from losing the
ability to operate in a country or
community, or to avoid a possible
boycott of its goods)or to create
new value (as when they access a
new market segment by adapting
products or services to address the
needs of low-income populations).
overseeing the Building
and operation of a Firms
cSR Strategy
Once the board understands the basic
theory of value of a given activity
how and why it is supposed to create
value, and for whomthe next
challenge is to assess whether it is in
fact working. The board needs to see
to it that performance objectives have
been set, that indicators of success
have been established and are being
monitored, and that processes are
in place for learning about how
the program can be improved on a
continuing basis.
Beyond examining individual
components of the frms CSR
activities, the board must face the
larger responsibility of ensuring that
the frm has a coherent collection of
CSR activities that are aligned with
one another and with the overall
strategy of the frm. Well-intentioned
CSR activities with little intrinsic
connection to the frms skills and
main business strategy are likely
to create management distractions
rather than build frm value.
In reviewing the CSR portfolio,
boards must therefore examine the
coherence of the CSR strategy as
a component of the frms overall
strategy by asking:
How do these actions ft together
with one anotherand with our
general strategy?
Is the CSR strategy internally
coherent?
Does our approach to CSR take
advantage of our key skills and
distinctive competenciesor
does it require us to develop
new capabilities that we do not
otherwise need?
Are decisions about CSR integrated
into our basic business systems
and decision processes?
When individual CSR activities
are carefully understood so that
we know why we are undertaking
them, what results we expect
from them, what their impact is,
and how we can improve them
over time, and when we have
formed a coherent collection of
these activities and integrated our
decision-making about them into
our main business strategy, CSR
will become an ongoing company
function that builds long-term
value for shareholders as well as
stakeholders.
Dutch Leonard and Kash Rangan are both
professors at Harvard Business School and co-
chairs of its Social Enterprise Initiative (www.
hbs.edu/socialenterprise). They teach the HBS
Executive Education program titled Corporate
Social Responsibility: Strategies to Create Business
and Social Value.
Moral obligations aside, companies more commonly act on social matters
because they see a business case for social response.
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or call (212) 854-0616
483- Columbia Business School
Boardroom Briefing
Page 4/C
Insertion date(s): Dec. 6
Close 11/3
Gardener-Nelson & Partners: 212-584-9100
A
seismic
generational
shift
has greatly
heightened the
importance of
corporate social
responsibility
(CSR) in
attracting the
best and the
brightest talent
to leading
companies.
We have found
that candidates
from so-called
Generation X
and Generation
Ythe two
demographic
cohorts that succeeded the baby
boomersincreasingly insist that the
companies they work for embrace
socially responsible practices.
Believing that the invisible hand of
the market should be supplemented
by the helping hand of social
responsibility, they want to see their
individual values writ large in the
corporation. The implication for
boards is clear: To help ensure a long-
term supply of top talent, they must
recognize that social responsibility
is profoundly important to the next
generation of leaders and explicitly
work with management in endorsing
and evaluating CSR programs.
While a companys CSR practices
may not be the primary factor in a
candidates decision to accept an offer,
it can certainly heavily infuence
candidates as they go through their
due diligence about a potential
employer. Imagine, for example, a top
executive who has been offered similar
packages from competing companies.
One is Starbucks, widely known for
its determination to go beyond the
cup through its commitment to
sustainable agriculture, diversity and
socially responsible investments.
The other offer comes from a company
that is indifferent to the plight of
farmers and has little interest in
sustainable agriculture.
In terms of recruiting an executive
to Starbucks, there is no question
that CSR is a tie breaker, says Craig
Weatherup, former Chairman &
CEO of the Pepsi Bottling Group and
current board member for Starbucks
and Federated Department Stores.
The young executives I know who
are future CEO candidates all have
a great deal of interest in these
questions about their companies: Are
we living our values? What are we
doing to make them real? In the old
days, maybe twenty-fve percent of
the CEO universe would not go near
certain kinds of companies for social
reasons. Now, twenty-fve percent
really look for the social reasons to
join a company.
As further illustration, a typical high-
profle candidate told us, I want to
work at a place where its not just
about the bottom line, but also about
humankind and the chance to make a
difference.
Beyond such anecdotal evidence,
confrmation of heightened interest
in social responsibility on the part of
the rising generations of leaders may
be found in the 2006 list of 100 Best
Corporate Citizens issued by Business
Ethics magazine (now part of CRO
magazine, devoted to the emerging
role of the Corporate Responsibility
Offcer). Using a variety of statistical
and analytic techniques, the list
embodies numerical rankings of
major U.S. companies on the basis of
service in eight areas: stockholders,
community, governance, diversity,
employees, environment, human rights
and products. Tellingly, eight of the top
10 best corporate citizens on the 2006
list are technology frmsincluding
Advanced Micro Devices, Agilent, Dell
and Motorolaa sector that has long
been a magnet for highly educated,
ambitious members of Generation
X and Generation Y, some of whom
founded Silicon Valleys most dynamic
companies. These frms know that to
attract and retain talent, it pays to be
socially enlightened, says Marjorie
Kelly, editor of Business Ethics. High-
tech seems to be a genuinely socially
responsible sector.
embracing the paradox
Although a companys attention
to social responsibility can be a
signifcant incentive for candidates,
Bonnie W. Gwin
practicing Social Responsibility from the Heart
By Bonnie W. Gwin and Torrey N. Foster
What boards need to know about the paradoxical role of CSR in recruiting
Torrey N. Foster
In terms of recruiting an executive to Starbucks,
there is no question that CSR is a tie breaker.
boards must understand that insofar
as CSR is adopted merely for its
instrumental value as a recruitment
or public relations tool, many of the
candidates we talk to are likely to be
unmoved. The commitment to social
responsibility must be authentic,
not just a matter of boilerplate in the
mission and values statements. The
prospective employer must practice
CSR from the heart.
Life is too short, says a recent senior
executive candidate, whose views are
typical of the high-performing, high-
potential candidates we encounter.
I want to be part of an organization
that isnt just about high performance
but that also cares about people and
the communities they live in. They
have to walk the talk toonot just
talk about it but have real programs
and measurements.
As boards evaluate the human capital
implications of their companies CSR
practices, its not enough to simply ask
if acceptable policies are in place. They
should ask management the questions
that candidates ask to determine
whether the company really means it:
Is CSR woven into the fabric of
the companys business? While
candidates welcome the long-familiar
practice of philanthropic donations
to worthy causes, many of the people
we talk to also believe that social
responsibility should relate directly
to the business of the company.
Whirlpool, appropriately for a maker
of household appliances, is the largest
single corporate sponsor of Habitat for
Humanity and by 2011 will be involved
in every single dwelling that Habitat
builds anywhere in the world. The
company is also determined to produce
environmentally friendly products,
and through its KitchenAid brands
Cook for the Cure program, Whirlpool
supports breast cancer research.
Corporate social responsibility is a
core value of the company not only
because its the right thing to do, says
David L. Swift, President, Whirlpool
North America, and a member of
the board, but also because its
a key driver of brand loyalty with
consumers today and it builds passion
and loyalty among our employees.
The companys efforts to integrate CSR
with the nature of its business have
not gone unnoticed: Whirlpool has
made the Business Ethics list all seven
years of the lists existence, and in
September the company was named to
the 2006/2007 Dow Jones sustainability
World Index (DJSI), an international
stock portfolio that evaluates corporate
performance using economic,
environmental and social criteria.
Similarly, Novartis, whose Foundation
for Sustainable Development has been
a leading voice on development issues
for more than 25 years, has partnered
with international organizations such
as the World Health Organization to
provide medicines against malaria,
leprosy, and tuberculosis to millions of
people in the worlds poorest countries
at no proftor sometimes for free. In
addition, the company has engaged in
social marketing to convince people
with leprosy that it is treatable and then
provided medicine for them. Novartis
has also developed programs to help
orphans of AIDS, and it has pioneered
an experiment in bringing health
insurance to the rural poor in Africa.
Are the boundaries of responsibility
broadly drawn? Along with regulators,
activists, labor unions, the press, and
communities, the rising generation
of leaders increasingly sees corporate
responsibility not only as a matter of
a companys behavior, but also the
behavior of its partners throughout
the value chain in matters like labor
practices and the environment.
Starbucks, through its Coffee and
Farmer Equity (C.A.F.E.) program,
seeks to instill sustainable agricultural
practices along its entire coffee
supply chain, efforts that have been
recognized as a model by many
throughout the coffee industry.
Is purchasing and investing power
used responsibly? Because company
purchasing power can contribute to
economic development in places that
badly need it, targeted programs can
be especially strong indicators of a
companys commitment to genuine
CSR. For example, The Body Shop, the
UK-based chain of cosmetics stores,
pursues a Community Trade program
that purchases accessories and natural
ingredients from disadvantaged
communities around the world.
Is CSR practiced locally as well as
globally? Recalling the Renaissance
notion of the individual as a
microcosm of the universe, many of
the new generation of leaders want
to see their individual values scaled
up in the company, beginning with a
commitment to the local community.
Novartis, clearly understanding this
connection, says that the company
wants to act the same way as
responsible and conscientious
individuals would act in their
community. Target donates more than
$2 million each week to local nonproft
organizations in the communities
Interestingly, we have found that prospective directors,
unlike the rising generation of executives,
rarely raise the question of CSR.
Today, executive compensation is more complex than ever. Greater competitive pressures.
Increased regulatory demands. Heightened shareholder concerns. As a result, Directors need ever
more complete expertise. Thats why so many organizations, from the Fortune 500 to emerging,
high-growth companies, turn to Pearl Meyer & Partners.
PM&P provides Directors and their Management unique depth and breadth of expertise. Research.
Assessment. Strategy and Planning. Implementation. Compliance. All with just one call. To learn
more, contact us at 212-644-2300 or
visit pearlmeyer.com.
A C L A R K C O N S U L T I N G P R A C T I C E A C L A R K C O N S U L T I N G P R A C T I C E
Pearl Meyer & Partners. Comprehensive Compensation.
SM
Who do you trust to
put all the pieces together
in executive compensation?

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CC6037_FullSprd 8/7/06 11:01 PM Page 1
where the retailer operates and gets
directly involved in local volunteerism
through Target Volunteers.
Do employees have the opportunity
to act directly for the greater good?
Many companies give their employees
release time to engage in community
service. They may grant a set amount
of paid time for an employee to do
volunteer work during business hours
or may grant paid leave to an employee
to work full-time with a non-proft
organization. The Gap, for example,
came up with a novel scheme when
a number of its stores in Denver were
closed for 10 weeks for renovations.
During this period, store employees
remained on the companys payroll and
divided their time between training
and volunteering with nonprofts in
the area. More than 60 community
organizations hosted Gap employees,
who volunteered nearly 10,000 hours.
Taking the next Step
Merely asking the right questions,
however, isnt likely to suffce. If the
board doesnt genuinely endorse and
regularly evaluate the companys CSR
practices they are likely to be half-
hearted, with negative consequences
for the recruiting of talent.
Interestingly, we have found that
prospective directors, unlike the rising
generation of executives, rarely raise
the question of CSR. This suggests
a potential disconnect between the
boards interest in these issues and
the intense interest of many executive
candidates. To bridge this gap, boards
can make CSR one more metric by
which they evaluate the performance
of management, even incorporating
it into their annual review of the
CEOs performance. Starbucks goes
one step further, issuing an extensive
and detailed Corporate Social
Responsibility Annual Report, signed
by Chairman Howard Schultz and
CEO Jim Donald.
CSR evaluation and reporting need
not be subjective. There are numerous
guidelines and reporting standards,
such as the Global Sullivan Standards
and U.N. Global Compact, for
evaluating performance in specifc
areas as well as CSR performance
generally. Since 2004, Novartis has
been reporting its CSR within the
framework of the Global Reporting
Initiative (GRI), a reporting standard
developed by CERES (Coalition
for Environmentally Responsible
Economies), an organization
encompassing corporations,
non-governmental organizations,
international organizations, United
Nations agencies, business associations,
universities, consultants, and
accounting organizations. The objective
Today, executive compensation is more complex than ever. Greater competitive pressures.
Increased regulatory demands. Heightened shareholder concerns. As a result, Directors need ever
more complete expertise. Thats why so many organizations, from the Fortune 500 to emerging,
high-growth companies, turn to Pearl Meyer & Partners.
PM&P provides Directors and their Management unique depth and breadth of expertise. Research.
Assessment. Strategy and Planning. Implementation. Compliance. All with just one call. To learn
more, contact us at 212-644-2300 or
visit pearlmeyer.com.
A C L A R K C O N S U L T I N G P R A C T I C E A C L A R K C O N S U L T I N G P R A C T I C E
Pearl Meyer & Partners. Comprehensive Compensation.
SM
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put all the pieces together
in executive compensation?

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CC6037_FullSprd 8/7/06 11:01 PM Page 1
of the GRI is to elevate sustainability
reporting to the same level of rigor
and credibility as fnancial reporting.
Novartis 2005 GRI report received the
GRI in accordance check. The Gaps
extensive annual Social Responsibility
Report includes indexes of the
companys performance against critical
GRI and Global Compact indicators.
In addition, because the GRI and the
Global Compact do not yet encompass
some of the most pressing issues in the
apparel industry, such as management
of human rights issues and labor
standards within supply chains, the
report includes a signifcant amount
of data about the companys ethical
sourcing practices that go beyond the
GRI and Global Compact guidelines.
It is certainly not surprising to see
CSR being brought under the general
umbrella of governance and the
boards oversight. After all, much
of the current interest in CSR has
its roots in issues of board diversity,
director independence, and board
accountability.
This convergence of good governance
and social responsibility can also be
seen, for example, in the Governance,
Nominating and Social Responsibility
Committee of the board of directors of
The Gap. Moreover, in a litigious age
and a wired world where a companys
reputation can be badly tarnished
overnight, CSR can certainly be
viewed as an aspect of risk mitigation
and therefore part of the fduciary
responsibility of directors. CSR is
becoming an accepted and even an
expected part of board governance,
says Starbucks board member Craig
Weatherup. The fact that boards are
asking these kinds of questions is to
me a very meaningful evolution in this
country. It is not fuff; it is about the
real direction companies are taking. It
has to be defned by the company. It is
not one size fts allit cant be in order
to be authentic.
Increasingly, boards are creating
committees explicitly tasked with
If the board doesnt genuinely endorse and regularly
evaluate the companys CSR practices they are likely to
be half-hearted, with negative consequences for the
recruiting of talent.
the Directors & Boards Survey:
Board Service
(Average number of boards respondents serve)
Public 1.17
Private 1.84
Charitable 1.90
Respondents age
Average Age:
54.35
Methodology
This Directors & Boards survey was
conducted in September 2006 via
the web, with an email invitation
to participate. The invitation was
emailed to the recipients of Directors
& Boards monthly e-Briefng. A total
of 430 usable surveys were completed.
about the respondents
(Multiple responses allowed)
A director of a publicly held company 32.2%
A senior level executive (CEO, CFO, CxO)
of a publicly held company 6.1%
A director of a privately held company 30.4%
A senior level executive (CEO, CFO, CxO)
of a privately held company 25.2%
A director of a non-proft entity 37.9%
Institutional shareholder 5.6%
Other shareholder 18.2%
Academic 11.7%
Auditor, consultant, board advisor 16.8%
Attorney 11.2%
Investor relations professional/ofcer 3.7%
Other 9.3%
(Other responses included: director of community
engagement, director of internal audit,
independent mutual funds director, former public
company director, corporate secretary.)
Revenues
(For the primary company of the respondent)
Average revenues: $1.641 billion
Less than $250 million 55.7%
$251 million-$500 million 12.3%
$501 million to $999 million 8.5%
$1 billion to $10 billion 17.9%
More than $10 billion 5.7%
0
5
10
15
20
25
30
35
40
21-29 30-39 40-49 50-59 60-69 70+
2.8%
10.3%
16.0%
35.7%
6.6%
28.6%
Corporate social responsibility is not just
a special program but rather is a part of
an integrated strategy to run business
in a sustainable way. Whether the issues
pertain to the environment, product safety
and impact, or human rights, they are
all part of the long-term thinking that is
characteristic of quality management.
We believe companies that are proactively addressing
these issues today carry less investment risk and are better
positioned to deliver value to their shareholders tomorrow.
Barbara J. Krumsiek
Chief Executive Ofcer,
Calvert Group
Directors Views: The Value of corporate Social Responsibility programs
Please rank your agreement or disagreement with the following statements, using the scale provided.
Please rank the impact of corporate reputation and philanthropic activities on the following:
Strongly
disagree
Somewhat
disagree
neither
disagree
nor agree
Somewhat
agree
Strongly
agree
n/a
Response
average*
Corporate social responsibility is largely a
public relations issue
41% 25% 10% 16% 8% 0% 2.26
Corporate social responsibility should not be
the purview of the corporation
50% 30% 7% 8% 5% 0% 1.88
Corporate social responsibility is vital to the
proftability of the company
5% 15% 20% 31% 28% 1% 3.62
Corporate social responsibility is assuming a
higher priority at our company
4% 14% 19% 39% 22% 2% 3.63
Corporate social responsibility justifes
sacrifcing short term gain for long term
shareholder and customer value
8% 13% 15% 40% 24% 0% 3.58
Corporate social responsibility is a
fundamental element of modern capitalism
4% 11% 20% 37% 27% 0% 3.74
Companies must do more than the law
requires and a corporate social responsibility
program helps us do that
6% 10% 13% 37% 33% 1% 3.81
Corporate social responsibility is in the best
business interests of our company
2% 2% 9% 33% 53% 1% 4.32
Corporate social responsibility has real,
measurable outcomes
4% 13% 19% 36% 27% 2% 3.69
Corporate social responsibility is mission
critical to our company
9% 14% 28% 24% 24% 1% 3.42
Corporate social responsibility programs help
us attract and retain top talent
5% 10% 16% 39% 28% 1% 3.0
no impact Some impact
Growing
impact
Great impact n/a
Response
average**
Share price 22% 32% 25% 5% 16% 2.14
Employee loyalty 3% 27% 40% 28% 1% 2.95
Customer loyalty 8% 28% 46% 16% 2% 2.70
Partnership/acquisition opportunities 26% 28% 30% 10% 6% 2.25
Insurance and risk mitigation costs 33% 29% 26% 9% 2% 2.11
Corporate litigation costs 34% 32% 23% 8% 4% 2.04
**A higher number indicates greater impact.
*A higher number indicates stronger agreement with the statement.
How does your board measure your
companys reputation?
Formal surveys and analysis 34.3%
Informally 42.6%
Other 4.1%
(Other responses included: By growth
in revenues and profts. Philanthropy is
important. Social responsibility should
be secondary to the business; feedback
from clients; quantitative risk analysis;
referrals and repeat business; sales and
total number of customers.)
Where does the responsibility for
corporate social responsibility/
philanthropy initiatives reside at your
primary company?

With the board 15.2%
With management 33.3%
With both the board and management 45.0%
Not applicable 5.8%
Other 0.6%
Are corporate social responsibility
and philanthropic programs on your
boards agenda?
Yes, every meeting 7.6%
Yes, at least once a year 21.2%
Yes, irregularly 34.7%
No 30.6%
Not applicable 5.3%
Other 0.6%
What Board Members
Must Know for 2007
Critical Issues
unimportant
Somewhat
important
importamt
extremely
important
n/a
Response
average
To you personally 4% 15% 40% 41% 1% 3.20
To your primary companys board 7% 37% 38% 16% 2% 2.65
Please rank the importance of corporate social responsibility and philanthropy.
50.0%
5.9%
2.4%
Other
43.5%
Yes
Not
applicable
No
Does your company
have a formal corporate
responsibility or
philanthropy program?

(Other responses included:
In development; its an
informal one.)
4.1%
1.2%
9.5%
Yes
86.4%
No
Other
Not
applicable
74.0%
4.1%
21.9%
Yes
Not
applicable
No
Does your company
have a Chief Corporate
Responsibility Ofcer (or
equivalent title)?
Does your company
operate or sponsor a
political action committee
or committees?
*A higher number indicates higher importance.
What Board Members
Must Know for 2007
Advice, Insight and Counsel from Drinker Biddle and Calvert
Critical Issues
2 0 0 7
A s p o n s o r e d s u p p l e m e n t t o
d I r e C t o r s & B o A r d s B o A r d r o o m B r I e f I n g
Legacy Programs and
Director Independence
doug rAY mond
R
ecent changes in the governance landscape
have attacked the often cozy ties between
management and the boardnew proxy rules on
executive compensation, NYSE and NASDAQ listing
standards, and trends in corporate governance which
create structural encouragement for outside directors
to challenge management. Given recent history, this
should not be a surprise.
For example, a majority of the directors of a public
company must be independent, as defned by the
exchanges. Tese independent directors must meet
regularly in executive session withoutand presumably
to discussmanagement. Te audit and executive
compensation committees, which must consist
entirely of independent directors, have increasing
responsibilities, from considering the adequacy of
the Companys internal fnancial controls to the new
CD&A (Compensation Discussion and Analysis) report
required by the SEC.
Te tests for independence that apply to outside
directors generally specifcally focus on fnancial ties.
For example, the defnitions of independence adopted
by the NYSE and the NASDAQ focus on whether a
director has signifcant fnancial or familial ties to the
company, such that he or she might be discouraged from
criticizing management and thereby potentially putting
their renomination (and remuneration) in jeopardy.
Under NYSE rules, a director is not independent if she
or an immediate family member has recently been an
employee of the company, or has received more than
$100,000 in any recent year (other than as director
compensation). Tese fnancial tests have generally
not been applied to charitable contributions made on
behalf of the director. Under NYSE rules, payments to
a charity do not implicate the various fnancial tests of
independence, even if the director has an afliation.
A recent change in proxy rules, as well as a series of
Delaware cases, have heightened the debate on whether
focus on direct fnancial relationships between a director
and the company has been too superfcial to identify the
deeper, and more subtle ways, director autonomy may be
afected. For example, what about the company legacy
program that makes signifcant donations to a charity of
the directors choosing after his or her retirement from
the board? Many people would perhaps be a little cowed
if they thought that the charity might lose that beneft if
they were too challenging of management.
Recognizing this potential, the SEC recently changed
its rules to require that public companies report any
programs by which the company agrees to make
donations to a charity in a directors name, regardless
of when payment is made. Te NYSE also requires
that a listed company report in its proxy statement
any contributions it makes to a charity in which any
independent director serves as an executive ofcer
if, within the preceding three years, contributions in
any single fscal year from the listed company to the
organization exceeded the greater of $1 million, or
2% of such tax exempt organizations consolidated
gross revenues.
In the recent Disney litigation, the court evaluated the
independence of the directors, including the president
of Georgetown University, which was the alma mater
of the CEOs son and recipient of over $1 million in
donations from the CEO. Te Delaware Chancery
court found that these philanthropic and limited
social ties, without more, were insufcient to raise a
doubt as to director independence.
In derivative litigation involving Oracle Corporation,
the court examined the independence of two
directors, both professors at Stanford. Tese two
directors were members of a special committee
deciding whether the company should pursue
certain claims against some other directors and
ofcers. For these purposes, it was essential that the
two directors be independent from the potential
defendants, three of whom also had extensive ties to
Stanford, including being Stanford alumni, signifcant
donors, or current faculty. Te defendant directors
were also considering signifcant future donations
to Stanford. In that case, the court found that these
personal, professional, and philanthropic relations,
taken together, created a reasonable doubt as to the
independence of the special committee.
Despite the numerous regulatory provisions and court
decisions regarding director independence, there are
few bright-line rules outside of the black-and-white
fnancial tests. However, the SECs new disclosure
requirements plainly are designed to deter signifcant
charitable contributions made for or on behalf of a
director. Boards should be sensitive to social and
other relationships among directors, and recognize
increasing criticism that is being directed at what, in
an earlier time, was called the Old Boys Network.
Doug Raymond is a partner in the
law frm Drinker Biddle & Reath
LLP and heads its Corporate and
Securities Group. He can be contacted
at douglas.raymond@dbr.com.
David C. Vaccaro, an associate
in the Corporate and Securities
Group at Drinker Biddle, assisted
in the writing of this article.
Tis article is intended to inform
readers of developments in the
law and to provide information of
general interest. It is not intended
to constitute legal advice regarding
any clients legal problems and
should not be relied upon as such.
Drinker Biddle
& Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
(215) 988-2700
(215) 988-2757 fax
www.drinkerbiddle.com
C r I t I C A l I s s u e s 2 0 0 7
Legacy Programs and
Director Independence
DRI NKER BI DDLE
WHERE DI RECTORS LOOK FOR GUI DANCE
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Drinker Biddle & Reath LLP, a Pennsylvania limited
liability partnership. Est. 1849.
We can help
directors and
significant stockholders
stay on course
in perilous waters.
To find out more, visit us at
www.drinkerbiddle.com.
#05-4514 Updated Corp Governance Ad FNL 12/28/05 3:30 PM Page 1
Climate Change
and Investment
J ul I e f ox gorte
C
limate is the envelope within which all
human commerce and civilization take place;
human-induced warming will change both
profoundly. Already, storms have become more severe;
insurers are forecasting a doubling-to-tripling in losses
from foods as a consequence. In 2006, we saw record
heat in the South, a spate of early-season tornado
activity, devastating fres in the West, fooding in New
Englanddramatic weather that is exactly what we
would expect as a consequence of climate change.
For investors, climate change poses risks and
presents opportunities whose incidence and
magnitude varies greatly by sector and industry, and
over time. Most of the attention in the scientifc,
advocacy, and investment worlds has focused on
the downside of climate change. But the drivers of
risk often are also the incubators of opportunity,
and investors need to be aware of both.
Climate risk can enter portfolios through several
doors. Te most prominent, for the past several years,
has been the risk of litigation or regulation, which
primarily afects companies that emit greenhouse
gases (GHG) in signifcant quantities. Since the Kyoto
Protocols entry into force, markets to trade emission
permitsso-called carbon marketshave developed
quickly, primarily in Europe, establishing a price
for emissions reduction that helps businesses in all
Kyoto ratifying nations to quantify the monetary
impact of regulation, and begin to manage the
risks of noncompliance. It has also helped fnancial
analysts to understand the investment implications:
now that emissions have a price, and reduction has
value, in most of the worlds developed markets,
fnancial analysis can make determinations on
which companies are best and least well-positioned
to compete in the new, carbon-constrained world.
While the United States has not ratifed the Protocol,
and has no mandatory federal program regulating
GHG emissions, regulatory risk is still a factor for
American companies. Over half of the states have
some kind of program in place to deal with climate
change and GHG emissions. Environmental groups
have sued some large emitters, such as electric utilities,
in an efort to compel them to reduce CO2 emissions.
Another risk that, like regulatory and litigation risks,
large emitters face is that of reputational risk. Tere
is little question that reputation is an increasingly
valuable asset to many corporations. According to
a recent survey, 85% of frms consider their brands
to be their most important asset. Major brand crises
have often involved social and environmental factors,
and as Americans increasingly see climate change
as a pressing issue, companies responsiveness to it is
likely to be increasingly associated with their brands
and reputation. Investment analysts increasingly
see the value of being perceived as environmentally
friendly, and the potential liability in the obverse.
Finally, physical risk is also a danger. Many
companies saw signifcant damage to their
physical assets and interruptions in operations
as a result of the last two hurricane seasons in
the United Statesso much that some property
and casualty insurance companies no longer will
underwrite certain types of weather-related losses
in hurricane-prone areas. Nearly half the companies
in the top ffth of the S&P 500 reported substantial
(and in some cases material) impacts from the
hurricanes in their fourth-quarter 10Qs in 2005.
Te fip side of risk is opportunity. Nearly every
risk factor described above presents a competitive
opportunity to companies that understand and
take steps to manage climate risks. A recent
report by Citigroup and the World Resources
Institute identifed 10 companies that may be well
positioned to take advantage of increasing concerns
about climate change and a tightening regulatory
regime. Te opportunities identifed by this report
included products that improve energy conversion,
technologies that improve the carbon-intensity of
production, products, or services that can sequester
carbon by storing CO2 in repositories that keep it out
of the atmosphere, and products or technologies that
replace carbon-intensive products with substitutes
that reduce the carbon emissions (e.g., biofuels and
ethanol). According to a recent report by Ceres,
[c]ompanies at the vanguard no longer question how
much it will cost to reduce greenhouse gas emissions,
but how much money they can make doing it.
Dr. Julie Fox Gorte is vice president
and chief social investment strategist
for Calvert. She applies Calverts
analysis of environmental, social,
and governance (ESG) factors to
investment portfolio construction.
At Calvert we are incorporating
analysis of company responses
to climate risk to better inform
our investment process.
For more information,
contact Steve Himber at
805-527-2101 for the full
version of this white paper.
Calvert
4550 Montgomery Avenue
Suite 1000
Bethesda, MD 20814
301-657-7048
calvert.com
C r I t I C A l I s s u e s 2 0 0 7
Calvert.
Doubly intensive research.
Singularly impressive range
of investment strategies.
Investment in mutual funds involve risks, including possible loss of principal.
For more information on any Calvert mutual fund, please contact Calvert at 805.527.2101 for a free prospectus. An investor should consider the investment objectives, risks,
charges, and expenses of an investment carefully before investing. The prospectus contains this and other information. Read it carefully before you invest or send money.
Calvert mutual funds are underwritten and distributed by Calvert Distributors, Inc., member NASD, a subsidiary of Calvert Group, Ltd. #6144 (11/06)
For over 20 years, Calvert has employed
a unique investment research process
that integrates financial analysis with an
assessment of corporate social
responsibility. We call it Double
Diligence,and we employ it to
assemble the broadest range of
socially responsible strategies. From taxable
bond and money market to domestic and
international equity, every strategy is
backed by our comprehensive research
on the issues that matter and by the
expertise of our premier institutional
money managers. More than ever, we see
the companies most dedicated
to enhancing their market
value tomorrow are those
demonstrating a commitment
to corporate social responsibility today.
Put Calvert money management expertise
to work for you. For more information, call
805.527.2101 or visit our site at calvert.com.
Mutual Funds
Retirement Plans
Separate Accounts
Insurance Trust
Cash Management
CALV4795_DirctrsBrds_8.5x10.875 11/13/06 10:12 AM Page 1
Whether or not you have formal corporate social
responsibility programs, where does the impetus for these
types of activity come from at your primary company?
(Multiple responses allowed.)

Board 60%
Management 77.6%
Shareholders/investors 22.9%
Employees 51.2%
Business partners 15.3%
Government regulations 16.5%
Outside pressure groups 14.1%
Media 8.2%
Other 3.5%

(Other responses included: We are a non-proft its part of what
we do; customers; the company does not focus on these issues;
public relations consultants.)

In the last year, have your shareholders become:

More active in addressing and/or suggesting corporate social
responsibility programs 18.7%
Less active in addressing and/or suggesting corporate social
responsibility programs 2.9%
About the same 50.9%
Not applicable 26.3%
Other 1.2%
corporate Social Responsibility programs

Whether or not you have formal corporate social
responsibility programs, which of the following activities
does your company engage in?
(Multiple responses allowed.)

Corporate charitable contributions 78.5%
Matching employee charitable contributions 42.3%
Gifts in kind 42.3%
Allowing staf the time to devote to charitable causes 77.3%
Devoting management time to managing charitable
and philanthropic activities 63.8%
Formal grants and philanthropy 27.6%
Other 4.9%
(Other responses included: many other programs beyond
community engagement (e.g, ethics hotline, client
reacceptance process, independence reviews and policy); our
product is devoted to social responsibility; environmental/
energy initiatives, encouraging volunteerism, bringing
charity appeals into the company, supporting local and
national organizations; cause marketing.)
Are these programs:

Local 78.7%
Regional 43.9%
National 39%
Global 18.3%
Not applicable 3.7%
Other 0.6%
Are these programs:
Formally budgeted each year 40.4%
Invested in on an ad hoc basis 46.4%
Not applicable 10.8%
Other 2.4%
Are shareholders given the opportunity to review and/or
approve corporate social responsibility and philanthropy
initiatives?
0
10
20
30
40
50
60
Yes,
formally
Yes,
informally
No Not
applicable
Other
6.7%
15.2%
57.9%
18.9%
1.2%
Is your primary company addressing any of the following
issues, whether formally or informally?
(Other responses included: eco-responsibility and environment;
youth ftness; at-risk youth, education, culture/quality of life;
civic improvement; capital market practices; oral health; HIV/
Aids; unmet community health care needs; treating customers
fairly; equal access to capital.)
Does your company require that vendors, especially
ofshore vendors, comply with certain human rights
issues in order to be a vendor?
corporate Social Responsibility
and public Relations

Does your
company
advertise or
promote its
corporate social
responsibility
or philanthropic
initiatives?
Which of the following elements of corporate reputation
does your primary company use to infuence public and
investor perceptions of your frm?
Proactive outbound corporate communications and public relations 47.5%
Active outreach to shareholders for their collective opinions 16.7%
Transparency of operations
(particularly in Third World or nations with low labor costs) 19.8%
Tours of of-shore facilities by top corporate management 6.8%
In-region corporate social responsibility programs 26.5%
None of these/Not applicable 38.3%
Other 1.2%
Has your primary
company ever
been harmed by
a negative public
relations campaign
or press coverage of
an issue related to
social responsibility
and corporate
reputation?
29.0%
1.9%
22.2%
Yes
46.9%
No
Other
Not
applicable
0
10
20
30
40
50
60
70
80
Human
rights
Child
labor
Equal
employment
& diversity
Work/life
balance
Other
30.9%
16.5%
70.5%
64.7%
20.9%
83.8%
0.6%
15.6%
Yes
Other
No
61.7%
5.6%
3.7%
29.0%
Yes
Other
Not
applicable
No
Do you think customers are positively infuenced by
corporate social reputation?

Yes, they defnitely buy more from or do more business
with companies with positive social reputations 43.3%
Im unsure about the impact of corporate social reputation
on our customers buying habits 46.3%
No, it makes no diference 8.5%
Other 1.8%
Thinking about your own buying experiences, do you
tend to:

Do more business with companies that have
positive social reputations 60.1%
It makes no diference to your buying habits 35.6%
Other 4.3%
(Other responses included: only in certain areas; on initial
purchase decisions, it makes no difference. However if I learn that
a company is engaging in inappropriate and harmful activities, I
will choose a competitors product instead.)
Director comments
Do you agree or disagree with the following statement:
Corporate social responsibility programs provide real,
measurable value to our company and its stakeholders.
Why?
I disagree. CSR is not quantifable, predictable, or measurable.
Agreesooner or later, stakeholders will value more highly
those companies with strong social responsibility programs.

I believe that Corporate Social Responsibility Programs do
provide real value to companies. But I dont know how this can
truly be measured.
I do agree, especially in the areas of recruiting and retention.
Working for a company that goes beyond the letter of the
law, allows for active contribution to pressing social issues
and creates a culture of doing the right thing at all times is
incredibly important to employees. Most people on the street see
CSR as taking care of your employees.
It could provide real, measurable value to companies, but
most companies do not measure it.
I agree for two reasons. 1) studies are showing that over the
long term, CSR is neutral or positive for business (employee
Mike Kipp
F
or context,
I responded
to the
survey on
Corporate
Social
Responsibility
on the basis of
my experience
as an organizer
and director of American Home
Bank, NA. In 2001, my wife and I
joined with six others in a modest
investment in an idea that has
become a business with 300 jobs
supporting 1,000 family members
in service of 10,000 discreet
customers enjoying the fruits of
nearly $900,000,000 in mortgages.
Our mission was to help people
afford, buy and enjoy the home of
their dreams. Our directorate is
deeply committed to the growth and
perpetuation of such ventures.
As directors, we try to align the
interests of management with
the interest of ownership. We
believe just as strongly, though,
in aligning our companys efforts
with the interests of the larger
communitythe municipalities
across the 14 states in which we
operate. Accordingly, we assess
our performance along three
dimensions in something of a
triangle of accountability: employee
fulfllment, value creation and
civic responsibility. While the
frst two are self-explanatory, the
third merits a bit of expansion. We
focus our philanthropy on mission-
relevant initiatives like Habitat
for Humanity and the allocation
of community reinvestment
funds to the economic education
of historically marginalized
populations. We develop technology
tools like designyourbank.com,
myconstructionplanner.com
and americanlogmortgage.com
to demystify both banking and
home ownership. And we expect
our offcers to engage with their
communities as volunteers and
contributors in line with their
personal commitments. Although
we always appreciate the recognition
this occasionally brings, we do it
because we believe its the right
thing to do. We consciously avoid
extending our defnition-in-practice
beyond these initiatives, believing
thats we should do a few focused
things well than let a thousand
fowers bloom.
Mike Kipp is an organizer and director of American
Home Bank, NA and partner in a Strategic
Leadership Advisory Service. He is writing a book
on the management and governance of privately
owned companies. He may be reached via
mike@mikekipp.com.
recruitment, share price, etc.), and 2)
modern capitalism is demanding it.
Yes, because numerous studies affrm
that 35-50% of any listed companys
share value is determined by intangibles
such as CSR.
Yes, they do but the most important
impact of these programs is measurable
over the long run rather immediately
after the investment.
I agree that over the long-term social
responsibility programs provide real,
measurable value to all organizations and
their stakeholders. The positive public
relations it generates is invaluable. There
are many people determining what they
do, where they go, and where they spend
their money based on an organizations
level of social, environmental and
governance responsibility. I know that my
family and I are!

It is impossible to measure the yield on
such investments, and too often they are
the products of a CEOs enthusiasms,
and not tied clearly to the corporate
reputation.
I disagree. We do CSR because it is the
right thing to do, not because it will
give beneft to the company and its
stakeholders.
I agree. Reputation is important to
attracting employees, helping the
communities where we reside, and
generating favorable terms with local
suppliers.
No. While such programs put a company
in a positive light, it is diffcult to
quantify the value to our company and
its shareholders.
We are in a service business where our
clients require some social responsibility.
We would do it anyway but we are more
focused on it for that reason.
I agree. Such programs build the
local economy; build opportunities
for local workforce, children; build
regional reputation of company i.e.
confdence and customer base which all
infuence corporate value and therefore,
shareholder value.
Yes, integrity (as distinguished from
PR-oriented programs which some
of the questions suggest) is recognized
and valued in establishing business
relationships.
As perceived by the investor, corporate
social responsibility is considered a
predictor of risk management for future
consequences.
We are in the retail business. Having
a reputation for giving back to the
community combined with the
commitment of our associates to being
a part of the community is invaluable to
the culture of the company. The strong
culture results from living our values, one
of which is to do the right thing. This
is the value that drives our commitment
to the community. The community in
turn responds by shopping our stores and
holding us in high regard as established
in surveys.
I agree. CSR makes our product more
attractive to customers, and our
employees feel proud to work for a
forward-thinking company. CSR can be
measured insofar as any marketing effort
can be measured.
I agree, but here CSR is not something
extra, it is part of what the company
does and how it operates. We distinguish
between CSR and philanthropy. CSR is
about providing value for stakeholders
through day to day business operations.
Philanthropy is about supporting larger
social causes not directly linked to the
business.
I agree. Price is the primary motivator
for consumers. By having sound,
recognized social responsibility programs
and services, a corporation will be more
likely to maintain positive and effective
relations with government agencies (our
not so silent partner(s)). Another added
plus with social responsibility is it fosters
loyalty by customers and employees and,
to a small degree, investors.
I agree. Certain investors, vendors and
prospective public sector customers/
business partners consider corporate
social responsibility when weighing
whether to enter into business
relationships.
I would agree. While the primary purpose
for companies is to make products/
services to sell to customers and make a
proft, many people view how a company
behaves as a citizen of the community,
nation and world as an indicator of good
stewardship. I am sure that situations
of poor social responsibility can have
a very negative impact, I am not sure
of the overall positive value nor how to
communicate it effectively.
I disagree as measurability remains
problematic and recognition is not
always easy to pin down.
Corporate Social Responsibility is a
positive, cultural issue for our company.
So long as the culture remains strong and
recognizable within the company, our
reputation for high ethical and governance
standards will remain in tact. We are at
a point when slips occur, we make an
example of themnot in a negative way,
but in exposing our shortcoming for all
to see, and importantly, to learn from,
by understanding the initiatives and
processes taken to respond in a way that
will prevent a repetition.
All business dealing with the public must
respond to the environment in which we
live. We have social issues which need
addressing. Corporations cannot avoid
being part of the solution (vs. being part
of the problem). We need to be involved,
or, with some customers, we become
insignifcant.
Proft maximization at the cost of
human, environmental and community
well-being is being challenged today.
Corporations have a particularly unique
role to play in the American culture-
-they have the powers of personhood
but not the responsibility. This did
not seem like such a bad proposition
in the 19th century but in these days
where the measures of success are
in growth--unrelenting growth--and
proftability, there seems to be need for
capitalism with a conscious. I believe
that corporations who address this trend
and begin to work to identify alternative
measuressomething other than layoffs
to gain a rise in stock pricewill fnd
themselves leaders in the process and
therefore will refect real measurable
value to all stakeholders.
W
hile a
companys
reputation
has always
been a
cornerstone
of its success,
the disturbing
increase in
the number
of cases of corporate behavior that
is unacceptable, illegal or marginal
has catapulted it to the foreground.
According to Harris Interactive, a
consulting frm that has conducted
annual surveys on corporate
reputation for the last seven years,
71% of adults in the United States
think that corporate Americas
reputation is either not good or
terrible. In addition, 48% perceived
corporate reputation as having
declined a lot. Only 14% saw
stability, and a paltry 7% reported
seeing some sort of improvement.
When asked to characterize the
reputation of corporate America
today, fewer than 1% agreed, its
great and only 19% that its good.
With such compelling data
underscoring Americas already
dismal view of corporate behavior,
why has reputation not been a more
urgent matter for directors? One
explanation is that many boards
assume that their company enjoys
a good reputation or at least does
not suffer from a poor one. Because
assumptions are usually tacit and
not articulated there is nothing to
prompt any active consideration of
the reputation as a strategic priority.
Another explanation is that reputation
is neither a short-term objective nor a
quantifable one. It is not something
that is audited, nor is it subject to
compliance. Sarbanes-Oxley does
not explicitly address it. By default,
this places corporate reputation in
the you-cant-measure-what-you-
cant-see category, and lands it safely
below directors and regulators
radar screens. Unless disturbed and
exposed, the idea that reputation can
be a powerful asset or a crushing
liability languishes near the bottom
of the corporate food chain and rarely
makes it to a boards agenda.
Reputation is an asset
The best boards, however, not
only understand that reputation
is an asset that can contribute to
or undermine a companys value,
they also actively manage it taking
advantage of substantive data to
support their decision to do so.

The Chairman of Lloyds of London,
Lord Leven, reported in a 2005
speech that loss of reputation is
now viewed as the second most
serious threat to an organizations
viability, business interruption being
the frst. An Economist Intelligence
Unit Survey ranked reputation risk
as the greatest potential threat to
an organizations value. In a survey
conducted among 2,000 participants
at the 2004 Annual Meeting of the
World Economic Forum, more CEOs
rated corporate reputation over
proftability as their most important
measure of success.
If these data are not suffcient to
jolt the majority of corporate boards
into action, there is also compelling
data that quantifes risk and links
corporate reputation to corporate
performance. Fortune Magazine,
which has been publishing the
results of its Americas Most
Admired Companies survey for 20
years, calculates that a change of
1 point positively or negatively on
its rating scale affects a companys
market value by an average of $107
million. The results of another study
published in 2003 in Management
Today, Britains leading monthly
business magazine, demonstrate a
clear correlation between corporate
reputation and equity return. Using
existing data from Fortunes surveys
to construct portfolios of the most and
least admired companies, the authors
found that for the fve years following
Fortunes publication of the results,
the portfolios of the most admired
companies had cumulative returns of
126% while those of the least admired
had cumulative returns of 80%.
Less savvy boards may choose to
spend time analyzing the kind of
data discussed above or poking
Deborah E. Wallace
is your Corporate Reputation a liability
on your Balance Sheet?
By Deborah E. Wallace
The idea that reputation can be a powerful asset or a crushing liability languishes near the bottom
of the corporate food chain and rarely makes it to a boards agenda.
Reputation is neither a short-term objective
nor a quantifable one.
B o A R D R o o m B R i E f i N g : C o R p o R A t E S o C i A l R E S p o N S i B i l i t y
holes in research methodologies
in order to rationalize why they
do not need to address the issue.
But for some boards, minimizing
or discrediting the importance of
corporate reputation serves as an
opportunistic diversion that could
ultimately become a very serious
strategic misstep.
The Role of Reputation
The most thoughtful and strategic
boards, however, are increasingly
aware of the key role that reputation
plays in the success of their
companies, and are actively fnding
ways to mitigate the risk associated
with a compromised reputation.
Because a companys reputation
impacts its relationships so broadly
internally with its employees and
shareholders and externally with its
customers, vendors and peer groups
it needs to be recognized, understood
and managed systemically rather
than as a series of discrete events.
A systemic approach to managing
reputation risk is demonstrated when
a board:
includes managing the companys
reputation as part of its role in
setting the tone at the top;
requires that reputation risk
policies and procedures be
formalized and communicated
throughout the company;
directs its CEO to design a risk
management plan that includes
mechanisms for unencumbered
decision-making and maximum
speed of response; and
joins with senior management
in scenario planning in an effort
to anticipate specifc risks to its
own and therefore the companys
reputation.
Scenario planning
Of all the board activities that can
have positive impact, scenario
planning deserves special note.
Scenario planning originated in the
United States in the 1960s as a way
of playing out future scenarios of
some of the most horrifc military
strategies being considered at
the time. This same process of
identifying the potential impact of
different kinds of disruptive events
on an institutions future is now
also being used by in business
settings, providing a rich context
for understanding and preparing for
multiple futures rather than for a
single, static one.
When done properly, scenario
planning requires that directors
have (or be willing to learn) a very
specifc skill set which includes:
broad-based and long-term thinking;
renewed appreciation for the power
of a companys cultural and political
climate; the ability to see patterns
in events rather than seeing events
in isolation; and a willingness
to leave their comfort zones and
govern in the realm of uncertainty.
In short, directors will have to think
systemically as they plan for their
companys futures.
As boards develop and refne these
skills, they will be more willing and
better able to ask the tough questions,
and more importantly, to make
whatever decisions are necessary
to fully engage their fduciary
responsibilities. Some key questions
for meaningful scenario planning
include: In what part of the company
is its reputation questionable or most
vulnerable? Is there a department,
business unit, line function or
geographical location whose
reputation is already in question or in
danger of being compromised? Is the
boards reputation at risk because of
a controversial decision that has been
made or because of an action not
taken? Is the integrity of an individual
board member questionable?
Under what circumstances will
the companys reputation be most
vulnerable? Will it be in choosing the
best successor for its current CEO?
Being caught off-guard without a
succession plan or interim plan when
a board member or top executive
leaves suddenly? Having its own
reputation compromised because of
improprieties or illegal activities of
an industry peer? Or, could imminent
regulatory changes expose otherwise
invisible improprieties of their own
company?
While there is increasing concern
about reputation as a corporate risk
factor, boards and directors still
have considerable learning curve to
master if they are to manage this
risk most effectively. The nature
of the work ahead will require a
fundamental shift in how boards
perceive and redefne their roles
within the current context of a
business environment in transition.
It will also require a renewed
commitment and desire to adapt.
Ultimately, boards will have to
be willing to challenge long-held
beliefs, revisit assumptions that have
routinely guided their decisions and
replace their need for certainty with
a new tolerance for uncertainty.
Deborah E. Wallace, Ed.D., is founder and
Principal of Wallace Consulting (www.
wallaceboardconsulting.com), a consultancy
providing board advisory services to both
corporate and non-proft organizations. Director
Professionalism, Board Structuring, CEO Succession
and Non-Financial Risk Management are among
the services she provides to a broad base of clients
who include New York Presbyterian Healthcare
System, New England Teamsters, Swales Aerospace
and NStar Gas and Electric.
B
oard
members,
in this age
of transparency,
are awakening
to the fact that
shareholders
want to know
the rationale
behind their
Corporate Social
Responsibility
programs. Why
is the enterprise
giving money
away, and to
whom? What
is the value of
these programs?
Prior to
Sarbanes Oxley, corporate philanthropy
often was implemented as an executive
perk, with organizational leaders
directing the fow of philanthropic
dollars. Corporate gift-giving often
benefted the enterprise, but in some
cases it mainly benefted senior
executives who gave money to charities
based on relationships they wanted
to build. However, board members
increasingly have become concerned
about philanthropy and the negative
effects of unchecked giving on
corporate image and reputation.
a public Relations nightmare
For example, imagine that a CEO
gives a million dollars to a charitable
institution, followed by the distribution
of a press release that announces the
donation. An enterprising reporter
investigates the gift and fnds out
that the CEOs daughter has a role in
the charity, or worse, that the CEOs
family benefts from the donation. The
giftnow clearly a mismanagement
of fundsbecomes a public relations
nightmare for both the corporation and
the board.
If the company is public, shareholders
may feel motivated to check the
corporations other charitable
donations. They could fnd that
millions of dollars have been given
based on the senior executives
personal relationships instead of
based on building the companys
reputation. At this point the
companys credibility and reputation
are at serious riska situation that
could have been avoided by creating a
philanthropic portfolio that was well-
balanced and research-based.
What do we mean by well-balanced? A
good philanthropic portfolio, according
to Charles Moore, Executive Director
of the Committee to Encourage
Corporate Philanthropy (the only
international forum of business CEOs
and Chairpersons focused on corporate
philanthropy), comprises a mix of
giving initiatives. These can range
from initiatives that simultaneously
beneft the community and measurably
enhance the corporations reputation
and sales, to initiatives that simply
represent the right thing to do (e.g.,
a Katrina disaster relief fund). The best
method of achieving a well-balanced,
low-risk portfolio is to use an approach
based on research.
Research-based philanthropy
Philanthropy that is research-
basedalso referred to as applied
philanthropyenables a board of
directors to defend and celebrate all of
its companys gifts. Just as important,
it enables the board to measure the
impact of these gifts based on media
coverage, employee satisfaction and
community perception surveys, and
also enables the board to be confdent
that the companys gifts are aligned
with its cultural values, goals, and
objectives.
Successful applied philanthropy
programs usually are designed to
reach measurable goals based on the
following key elements:
a baseline measurement of the
companys positive, negative
or neutral reputation within
the community (referred to as
community capital)
a program designed to improve the
companys community capital with
local neighborhood and business
audiences, as well as regional/
municipal governments
Mary Donohue
philanthropy Becomes Strategic
By Mary Donohue and Ken Neal
Why is the enterprise giving money away, and to whom? What is the value of these programs?
Board members increasingly have become concerned
about philanthropy and the negative efects of
unchecked giving on corporate image and reputation.
Ken Neal
a post-implementation measurement
of community capital
a report that enables the
organization to appreciate what
worked and whythereby
identifying opportunities for
improvement.
a case History
One example of a company that
implemented a successful applied
philanthropy program is a national
magazine targeted to 12-15-year-old
girls. The magazines goal was to
launch a strategic-giving program that
would increase market share by fve
percent in less than a year and increase
national ad revenue by seven percent.
The publishing companys frst
step was to implement an internal
strategic-giving audit. As a result of
the audit, the team learned that most
of the companys donations were
focused on senior managements
work with youth, but didnt include
the magazines staff, members of
the community, and other target
audiences. Basically, the company was
giving because it felt it had to.
As a result of the data provided by
the audit, the team created a teen girl
code that refects characteristics of
the magazines reader. The magazine
awards a $1,000 prize monthly to one
girl who exemplifes the code. $500
goes to the girl and $500 goes to the
charity of her choice. Nominations
are received by the magazines staff,
family, friends, local media, and
community offcials.
As a result of the program, the
magazine enjoyed an expansion of
its reputation beyond its readership
to include a more motivated staff as
well as local media and government
offcials. The magazine also reached
its target market share and ad revenue
increase in only 90 days. Additionally,
a major company assumed
sponsorship of the monthly awards
and the publication has become one of
the best-read teen magazines.
Getting Started
Many board members and company
executives wonder how they can start
an applied philanthropy program
or improve their current program.
A good way to begin, as the teen
magazine did, is with an internal
audit. The audit will help you focus
on who you should be reaching, and
then what your program elements
should encompass. Additional
considerations include being able to
answer the following questions:
Who is in charge of your corporate
giving?
Can you defend each gift with
research?
What training has your team
undertaken to understand how
to strategically disseminate
corporate gifts?
Are you satisfed that thorough
standards for transparency were
applied to your philanthropy
program, enabling it to stand up to
potentially rigorous examination?
With the right strategic program,
ideally directors and board members
will experience the satisfaction of
seeing their organizations both
giving, and growing.
Mary Donohue is president of Donohue Mansfeld and
can be reached at mary@donohuemansfeld.com. Ken
Neal is vice president of Mansfeld Communications.
He can be reached at ken@mcipr.com.
Philanthropy that is research-basedalso
referred to as applied philanthropy
enables a board of directors to defend and
celebrate all of its companys gifts.
T
he recent
Directors
& Boards
survey on
corporate
social
responsibility
suggests that
the topic has
risen to a level
of sustained
attention and
concern on
the part of
the governing
bodies of
leading US
corporations.
While we
applaud
the broader
attention to the responsibility of the
corporation to its many external
constituencies, our work on safe
and ethical behavior suggests that
directors must not lose sight of the
underlying and interior culture
giving reality to the sense of
responsibility throughout the global
frm. Charles Munger of Berkshire
Hathaway recently asked rhetorically
(at a Stanford directors conference),
What are we [directors] stewards
of? Number one, the duty to be
rational. Number two, the corporate
culture, which involves appearances
as well as doing right.
While it may be diffcult for the
board of a company or a complex
organization to know the quality
of discourse in the factories and
halls of its operations, it is precisely
this knowledge that a board must
developin addition to a formal
code of conductin order to exercise
its stewardship of the conduct
of the corporation. In the matter
of corporate responsibility, the
elements of culture we fnd most
supportive of both ethical and safe
behavior are:
Management credibility, principally
the composite of honesty,
consistency, and competence
Climate, or what gets expected,
rewarded, and supported in a
particular setting
The quality of both peer-to-peer
and upward communication, for
example, whether it is safe or
risky to communicate diffcult
news to peers and superiors in the
organization
To know whether the board itself is
supporting a responsible culture and
climate, the board members together
need to ask:
1. Are we as a board regularly (and
rigorously) monitoring the culture of
the company?
Measuring and monitoring the
culture fall within the boards
stewardship of the corporation and
contribute to the fulfllment of the
directors fduciary responsibility for
the companys behavior, as implied
in the 2004 Federal Sentencing
Guidelines. Many companies
already use employee surveys that
can be adapted to measure the
culture, but they are not always
viewed from this perspective.
Survey data can be reported in
relation to other frms, giving a
useful comparative measure of the
strength of climate.
Not even the Sarbanes Oxley Act
and its related regulations require
the detailed auditing of every part
of every business and function
within an organization in every year.
Instead, a suffciently large sample
is chosen each year, with careful
attention to the greatest areas of
risk. Likewise, we would not suggest
that a board use an organizational
survey every year to understand the
company culture, but rather seek
a variety of measures, often drawn
from existing data. NASA provides
a good example in their response to
the Columbia Space Shuttle tragedy.
They used comparative survey data
prior to and after an organizational
change initiative to measure
specifc targeted outcomes and
improve safety.
Tom Krause
Creating a Culture of Responsibility
By Tom Krause and John Balkcom
How a board can responsibly attend to the culture that enables responsible behavior both
inside and outside the company
John Balkcom
When Aristotle spoke of virtue, he said it is what makes
the human human. The question here is what makes
the company essentially the company.
2. Where is our greatest risk of an
Enron or a WorldCom?
Every organization faces the risk of a
major fraud or defalcation. The knee-
jerk response of that cant happen
here only increases the probability
of a misdirection of resources or a
misstatement of results, and the board
is ultimately responsible for both. In
Enron terms, the question is how the
board can make sure that the directors
themselves or their representatives
(e.g., the internal auditors) are at least
as smart as the smartest guys in the
room. The corollary questions to be
answered by the board itself or by its
deputies include:
What do we as the board know
about the manner in which these
practices are undertaken?
Who among our internal auditors
or external consultants is adept
enough to monitor the smartest
guys in the room among those
pursuing these practices?
To what practical degree can and
do senior management and the
board monitor this part of the
business and be sure it follows our
established code of conduct?
3. Has our executive leadership shown
our people both the courage to forgive
and the resolve to terminate?
While the New York Stock Exchange
and the NASDAQ now require that
each listed company enact a code
of conduct, and the Sarbanes Oxley
Act requires its disclosure, these
requirements set a low bar for the
behavior of boards, executives, and
employees. The tougher standard
for each company to formulate
encompasses behaviors that draw the
line between good and bad behavior.
And no single declaration of such a
standard will suffce to guide behavior.
Instead, an ongoing dialogue is
needed to formulate the application
of the standards to new and
unpredictable circumstances.
The implications are two: that
expectations of behavior be
stated explicitly and discussed
between and among members of
the company; and that leaders
listen to employees to assure
their understanding and to gain
their engagement in the stated
expectations. In this way, leaders
learn as much from employees
as employees from leaders about
what employees face and how they
respond.
Again, the Federal standard
is minimal: initial training in
compliance with regulatory
requirements is insuffcient, in
our view, to assure employee
understanding. Only ongoing
discussion, dialogue, and
conversation hold the promise of a
sustained and growing grasp of the
ground rules of good behavior.
4. Does our board behave in
accordance with a complementary
and clear ethic of fairness, integrity,
and transparency?
The answers to one question
illustrates whether the board also
fulflls the ethical standards of the
company, or whether their position
and privileges give them a pass on
the code of conduct: Does the board
openly report and discuss what
it does, including any failures to
live by the code of conduct? While
there is unquestionably a need for
confdential discussions at board
and committee meetings, much
board activity can stand the light of
day, and transparency to employees
and other stakeholders may serve
to instantiate the organizations
commitment to abide by a code
of conduct. By living up to this
question and its implications, a board
demonstrates whether it says what it
will do and does what it says.
5. Do our incentives (and other
sustaining systems) induce
expedience at the expense of
virtuous decision making?
Sustaining systems reinforce the
way the company conducts business.
They encompass organization
structure as well as the systems
of accountability, selection
and development, performance
management, recognition and
reward, employee engagement,
and talent management broadly
speaking. These systems send
loud signals that either support or
undermine the behaviors needed to
assure safety, quality, productivity,
and adherence to an ethical
standard of behavior. Their proper
design gives concrete expression, as
well as support and longevity, to the
ethical code of the organization.
Alternatively, systems of
performance management and
reward that give exclusive attention
to fnancial outcomes, without
balancing consideration for the
quality of behavior, can bring into
The knee-jerk response of that cant happen here
only increases the probability of a misdirection
of resources or a misstatement of results,
and the board is ultimately responsible for both.
play the downside of money. This
is best illustrated by Hal Holbrooks
character of the sage old broker in
the movie Wall Street who says, The
main thing about money, Bud, is that
it makes you do things you dont
want to do. Sustaining systems can
contribute to the perception within
an organization that quality, safety,
and ethical behavior do not represent
the leading organizational values that
govern decision making.
6. Does the organization use other
peoples money well?
The use and abuse of other peoples
money by the corporation has come
to be known in academic circles as
the agency problem. It speaks, for
example, to the separation of powers
between the investors in a frm (or the
contributors in the case of nonprofts)
and the executive leadership.
Abundant evidence now exists from
academic empirical studies that
monitoring by the board, as well
as incentives and other sustaining
systems are strongly associated with
the proper and with the improper use
of other peoples money.
The board, of course, has primary
responsibility for oversight of both
the use and the reporting of the
use of money by the organization.
It behooves the board to ask
itself, beyond the statutory and
regulatory requirements, whether
the organizations use of money is at
least defensible and at best virtuous
by its own standards. Emeritus
Prof. Al Rappaport of the Kellogg
School of Management, in Harvard
Business Review, suggests a stringent
standard for the use and/or return of
shareholders money: Return cash
to shareholders when there are no
credible value-creating opportunities
to invest in the business. (Alfred
Rappaport, Ten ways to Create
Shareholder Value, Harvard
Business Review, September 1, 2006.)
Rappaports strategic value principle
suggests two parallel guiding
principles of ethical behavior for
organizations: frst, dont assume
that we have the best use of money
in this organization, but rather
evaluate explicitly whether or not
this is so; second, when we do not
have the best available use of the
money, return it to its source. This
standard lies at the heart of free
enterprise, and it lays the ground
work for the fnal question.
7. What are our organizations core
virtues?
When Aristotle spoke of virtue, he
said it is what makes the human
human. The question here is what
makes the company essentially the
company. What distinguishes this
company or organization to each of
its constituencies, be they investors,
suppliers, employees, or vendors.
What meaning does this company
have in the world that sets it apart
from other frms?
Borrowing from Aristotle, virtues
are habits, and habits are repeatedly
observed behaviors. Moreover,
repeated behaviors reveal the
ethic of the organization. The
question here is not conceptual but
observational: what prevailing ethic
is revealed by visible behavior in
this organization by employees,
leaders, and board members? While
many if not most frms identify and
articulate their strategic advantages,
the board should also give careful
attention to the companys ethical
advantages, oras in many recent
and painful casesthe ethical
disadvantages that may come to
roost in the courts.
Climate and culture reside most
reliably in repeated and observable
behaviorsthe behaviors of leaders
at every level in front of their
staff and workers, as well as the
behaviors of peers between and
among one another. More reliably
than any posting of values on an
offce or factory wall, the revealed
and habitual behaviors of senior
leaders give defnition to the living
ethic of a company. This ethic
demands attention, monitoring, and
shaping by the board if the directors
are to abide by the code of ethics in
the board venue itself.
Tom Krause is chairman and co-founder of
Behavioral Science Technology, Inc. in Ojai,
California. John Balkcom is an independent
director of Aleris International, Inc (NYSE:ARS) and
adjunct lecturer at Northwestern University.
Untitled-1 1 6/15/05 1:25:25 PM
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Untitled-1 1 6/15/05 1:25:25 PM
A
strategic,
top-to-
bottom
commitment
to being
socially
responsible
and ethical
in the
manufacture,
distribution, marketing and sales of
products, popularly referred to as
is fast becoming an inescapable
fact in the global corporate
environment. Consistent with that
approach is a growing corporate
concern for the well-being of
society in general and local
communities in particular. It is
not hard to conclude that an
expanding core of educated, well-
adjusted, productive people in ones
future customer base will have
positive impacts on any companys
business prospects.

The names of some of the
companies that have recognized
the value of CSR and made it an
integral part of their business model
bespeaks the growing importance
and credibility of the concept;
these include companies such as
Starbucks, Chiquita Brands, The
Timberland Company, Stoneyfeld
Farms and C&S Wholesale Grocers.
These companies all retain
highly paid executives, many at
the vice president level, whose
primary function is to ensure that
the companys manufacturing,
employment, environmental and
marketing practices can withstand
reasonable scrutiny through the
prism of social responsibility.
More and more far-sighted
companies are also recognizing
that incenting their employees
to spend time improving their
communities through company
organized efforts or by simply
empowering individual employees
to make a difference, results
in a happier, more productive,
more committed and more stable
workforce.
Timberlands path of Service
A prime example of this philosophy
can be found at a major global
manufacturing company located in
New Hampshire, The Timberland
Company. Timberlands president
and CEO, Jeffrey Schwartz, has long
held the view that it is important
for his company to positively
impact not only its customers, but
the environment and people that
are impacted by his companys
operations, facilities and products.
Timberland, has, over the years,
put its money where its mouth
is on this issue. It has initiated a
myriad of innovative programs
that serve to incent its employees
to make a positive difference
in their communities. Its Path
of Service program is a prime
example. This program encourages
each employee to dedicate 40 hours
of service to his or her community
in whatever method or organization
the employee desires. The employee
is compensated for these hours by
Timberland as if they were normal
work hours, but the employee
has total discretion on how he or
she will spend the allotted time.
Employees are encouraged to get
involved by sitting on boards of
not-for-proft organizations and
local charities such as Meals on
Wheels, The United Way, soup
kitchens, or volunteering their time
and activities in other ways.
Timberland also has a Sabbatical
for Service program where
employees are encouraged to
take paid leave of two weeks to
six months for the purpose of
dedicating their time and skills in
a more focused way to a charity,
community organization or not-for-
proft organization. The employees
compensation and benefts are
maintained by the company during
his or her absence and there is no
loss of position or time of service
as a result of the sabbatical. In this
way, motivated, productive and
James C. Hood
How Communities Beneft from
By James C. Hood
An expanding core of educated, well-adjusted, productive people in ones future customer base
will have positive impacts on any companys business prospects.
Timberland, has, over the years,
put its money where its mouth is on this issue.
talented people fnd their way into
community service organizations
and groups, which otherwise might
fnd it diffcult to attract such skills
and talents. Examples of how this
program works include a New
Hampshire employee who spent his
six month sabbatical working for a
food pantry in his local community,
which, because of economic growth
in neighboring communities, was
experiencing a tremendous
increase in the number of people
needing its service. This employee
developed computer systems and a
capital fund drive economic model
that were geared to serving more
people effciently.
Another employee used her
sabbatical to work full-time for
the local United Way, during
which time she developed a
new distribution model for
contributions. Because this
model was more effcient than
what was being done previously,
contributions found their way
into the hands of deserving
organizations in the community
much quicker. Another employee
spent her sabbatical acting as
an interim executive director of
a sexual assault support group
in her local community. This
person brought managerial,
organizational and legislative skills
to the organization that it had not
previously enjoyed.
The good works fostered by the
Timberland Sabbatical Program
often extend beyond the borders
of the United States. One of its
employees took a six month
sabbatical to work with an
orphanage in his native Peru in
an effort to develop a long term,
sustainable economic model to
assure a continued growth of the
orphanages facilities and abilities
to care for a larger number of
children.
c&S Wholesale Grocers
Dollars for Doers
Small steps taken by large
companies under the rubric of
corporate social responsibility
can add up to signifcant benefts
to the low and moderate income
segment of local communities.
For example, C&S Wholesale
Grocers, Inc., a very large national
wholesaler of food and non-food
grocery products headquartered in
Keene, New Hampshire, recently
held a company sanctioned food
drive in observance of National
Hunger Awareness Day. Employees
collected over 8 tons of staple food
products nationally for distribution
to 17 food banks in the local
communities in 11 states where
C&S facilities are located.
This was only a single example
of community outreach from
a national company with a
core commitment to corporate
social responsibility through
fostering community service by
its employees, nationwide. Like
Timberland, C&S has developed
programs to incent employees
to give of their time and talents
to local communities. One of its
programs, called Dollars for
Doers, encourages employees
to donate a minimum of
25 hours to qualifed non-proft
organizations of their choice, and
C&S has committed to donate
to those organizations $1.00 for
every additional hour of service
given by the employee. Schools,
soup kitchens, Boy Scouts and
emergency rescue squads are
some of the benefciaries of this
program.
While these are examples of
what has been done by only one
national and one international
company, it is easy to see how
tremendous an impact, in both
this country and across the
globe, such programs would have
when initiated by larger numbers
of national and international
corporations. It is also easy to see
that the direct and quantifable
beneft that such programs bring
to the low and moderate income
segment of a given community is
a natural and desired outgrowth
of a continued concentration
and focus on Corporate Social
Responsibility in the work place.
However, we all beneft from the
more stable economics and political
environment these activities tend to
create at the local level.
This article is an edited version of a
piece by Mr. Hood which originally
appeared in the January 2006 issue
of New England In-House and is
reprinted with permission by Dolan
Media Company.
James C. Hood is a partner with Nixon Peabody
LLP. He concentrates his practice in the areas of
corporate governance, restructuring, acquisitions,
mergers, debt and equity fnancing, shareholder
dispute resolution, joint venture formation
and distribution arrangements (domestically
and internationally), limited liability company
formation, and strategic partnerships. Hood holds
a JD from Georgetown University, and earned his
BA at the University of New Hampshire.
C&S has developed programs to incent employees to
give of their time and talents to local communities.
(Googins, from page )
social contract no longer applies, but
it makes clear that business is not
abnegating responsibility.
courageous leadership
is needed
KPMG Chairman and CEO Mike Rake
calls for courageous leadership. We
need chairmen and chief executives
to be courageous and determined
to take a longer term view of their
business, he said. This is important
not only in terms of the normal
evaluation of fnancial returns over
the long term, but also the need to
recognize businesss responsibility
to the communities and the
environments they work in.
This means executives need the
courage to make the case to an
investment community fxated on
the short-term, and distrustful of
executive excess. Courage to lead
the internal change necessary
for companies to meet new
expectations. Courage to stand
up to the still loud voices who do
not grasp that change has already
happened, and want to hamper
companies responses. And courage,
too, to take on those who will
continue to be skeptical about the
purpose and intentions of business.
Bradley K. Googins, PhD is the Executive Director of
the Center for Corporate Citizenship and a professor
in the Department of Organizational Studies at the
Wallace E. Carroll School of Management at Boston
College. In 1990, Dr. Googins founded and for six
years directed The Center for Work & Family at
Boston University.

Dr. Googins is the author of several books and
monographs including: The Company of Choice,
Strategic Responses 1999: Corporate Involvement
in Family and Community Issues; Balancing Job
and Homelife Study: Changes Over Time in a
Corporation; Work-Family StressPrivate Lives,
Public Responses. He was a co-editor of Community,
Work and Family. He has published numerous
articles and book chapters and has appeared at
conferences around the world.

A graduate of Boston College, Dr. Googins received
a Masters in Social Work, Community Organization
and Social Planning, from the Boston College
Graduate School of Social Work, and a Ph.D. in
social policy from the Heller Graduate School at
Brandeis University.
(Atkins, from page )
What the investing and consuming
public expects of its for-proft public
corporations is that they not be
irresponsible. By this, we mean:
Be transparent in your fnancials so
the investing public knows what the
real situation is.
Produce a quality product and dont
misrepresent it.
If you know something about
the product that endangers the
consumer be forthright and let the
public know.
Do not use predatory practices in
your offshore manufacturing with
child labor.
Do not pollute our environment or
other environments.
Be respectful, fair and open in your
employment practices.
This is what we really mean by
Corporate Social Responsibility:
dont be irresponsible. Corporate
management teams that mistake
politically correct rhetoric and
re-deploy their investors assets,
negatively impacting profts, for social
causes, do so at their own peril!
Betsy Atkins has been the chief executive ofcer
of Baja Ventures, an independent venture capital
frm focused on the technology and life sciences
industry, since 1994. Previously, Atkins served as
chairman and chief executive ofcer of NCI, Inc., a
functional food/nutraceutical company, from 1991
through 1993. Atkins was a co-founder of Ascend
Communications, Inc. in 1989 and a member of its
board of directors, and served as its worldwide sales,
marketing and international executive vice president
prior to its acquisition by Lucent Technologies in 1999.
Atkins serves on the board of directors of Reynolds
American, Inc., Polycom, Inc., Chicos FAS Inc. and
SunPower Corporation, as well as a number of private
companies. Atkins also was a Presidential- appointee
to the Pension Beneft Guaranty Corporation advisory
committee and is a Governor-appointed member of
the Florida International University Board of Trustees.
(Gwin & Foster, from page 19)
overseeing CSR. The Public Affairs
Committee of Raytheon reviews
policies and practices of the company
and monitors compliance in the areas
of legal and social responsibility,
including environmental protection,
health and safety, employment
practices, charitable contributions,
government relations, community
and university relations, product
quality, crisis management and
emergency preparedness, in
addition to monitoring ethics and
regulatory compliance, litigation and
enforcement actions.
Boards that get out in front of this
trend and institutionalize CSR now
can not only reap the familiar business
benefts of enhanced brand image,
improved quality, and greater customer
loyalty but also help themselves win
the all-important battle for talent.
And in todays environment, where
companies relentlessly pursue strategic
and operational advantages around
the globe, it is increasingly talent that
is the real differentiator in corporate
performance.
Bonnie W. Gwin focuses on Board of Director and CEO
searches and is Heidrick & Strugglesformer president
of the Americas, where she was responsible for all
frm operations in North and Latin America. Torrey N.
Foster is managing partner, Americas for Heidrick &
Strugglesglobal Consumer practice. Both are active
members of the frms Board of Directors practice.
The authors can be reached at bgwin@heidrick.com,
tfoster@heidrick.com or by phone at 312.496.1345.
Navigators Leads With Innovation
Visit our website at www.navg.com or contact your insurance broker to find out more about how
Navigators Leads with Innovation. Navigators Insurance Company and NIC Insurance
Company are rated A [Excellent] by A.M. Best and A [Strong] by Standard & Poors.
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www.heidrick.com/board
312.496.1345
board building
with a plan for the future
Credentials only get you so far. By taking the time to truly understand
our candidates and our clients' boards, Heidrick & Struggles nnds more
than the right person. We nnd the right person to strengthen your board.
With our team-oriented philosophy, we have produced decades of eective
boards and enhanced corporate governance. At Heidrick & Struggles,
our goal is strategic board building, creating for the long term a continually
stronger board and enhanced contribution to your company's success.
plays well
with others
HSBoardBuilding 1 5/25/06 4:53:43 PM

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