MJ Lilly Associates

There’s a belief that when something bad happens, something good usually comes out of it. With the BP disaster in the Gulf, however, it’s hard to believe in silver linings. But coming on the heels of the biggest financial meltdown since the Great Depression, the BP fiasco might just be the critical “tipping point” in getting companies to commit to Corporate Responsibility (“CR”) as an unwavering and necessary component of their business strategy….and to do it NOW.

At many companies, CR has historically been treated as a “nice to have” public affairs effort rather than a “must have” business imperative. With most CR programs centered on philanthropy and community relations activities, management’s focus on CR has typically increased when it has been used as a strategic business tool to address a market or business crisis.

There are numerous examples. Over the past 20 years, there has been the adoption of ethical training programs in response to insider-trading and corporate scandals; the creation of the sustainable development movement following oil and chemical spills; and even the strong growth of the green movement a few years back in response to calls for reduced energy consumption and proposed carbon emissions legislation. Similarly, individual companies have adapted new CR initiatives in bowing to market pressures. McDonald’s revised its menu to reflect concerns over healthy eating and Wal-Mart embarked upon a full-scale green campaign after being accused of environmental violations.

The positive effects of these CR efforts, from improved consumer sentiments to enhanced stock prices, have not been lost on an increasing number of enlightened management teams. They recognize CR is an effective brand-building and valuation tool. Regardless, CR levels of commitment continue to vary from company to company with budgets remaining vulnerable to cost-cutting during difficult economic times.

But the financial debacle of 2008 – the grand-daddy of market crises – has been a major catalyst in making CR a more critical element of a corporate strategy. The focus on “sustainability” is no longer just about environmental initiatives but investing in strategies and systems to ensure a company survives and prospers. It’s about values-based leadership that makes decisions for long-term benefit rather than short-term gain.

On June 22nd, the UN Global Compact and Accenture released the findings of the largest CEO survey ever conducted on the topic of sustainability. It revealed that 93 percent of the 766 corporate CEOs surveyed believe that sustainability has “become critical to their success, and could be fully embedded into core business within ten years.” Nearly 80 percent of CEOs reported that the economic downturn did not lower but actually raised the importance of sustainability as a source of cost efficiencies and revenue growth.

The economic meltdown has also spurred a growing emphasis on public and private sector collaboration in finding solutions to a myriad of concerns that impact our nation’s long-term economic viability. This was in evidence at the National Conference on Volunteering and Service (NCVS) held in late June. Leaders from across the nonprofit, government and corporate sectors addressed the need to work together on the pressing issues of our time. Companies are being challenged to move beyond passive philanthropic activities and assume a more activist approach to CR initiatives.

Now add the BP fiasco to this heightened corporate consciousness. It is the type of major event that demands CR become a necessary component of a company’s strategic business approach, planning, advocacy and overall activities. It’s a tipping point.

BP’s corporate irresponsibility has proven to be costly on multiple levels.

As The New York Times reported on July 13th, analysts, competitors and former employees commented that “…BP was taking too many risks and cutting corners in pursuit of growth and profit,” and that the firm, “…was arrogant and proud and in denial.” These transgressions have resulted in one of the worst environmental disasters on record to harmfully impact local Gulf businesses, the fishing industry, BP shareholders, British pensioners and the American taxpayer, not to mention innocent wildlife.

The financial hit has also been great. On July 27th, BP reported that the Gulf spill had cost the company $32.2 billion to date driving BP to a second quarter loss of nearly $17 billion, and plans to sell $30 billion of assets over the next 18 months. It has also cost CEO Tony Hayward his job.

More importantly, the BP fallout doesn’t stop with BP. It’s been an indictment on the oil and gas industry and raised suspicion on the management teams that run them. And it’s another blow to how big corporations are perceived, casting further doubts on how they operate.

Waiting ten years to incorporate the principles of CR and sustainability into core business practices may be too long. The time is now.

This issue of Insights is the expressed view of Maria Lilly and does not necessarily reflect the views of the Associates.

For more information, please phone 718-855-1853 or email: mjlilly@mjlilly.com.