Environmental, Social & Governance Briefs

Q&A with James Sisco: Managing Social Risks

August 28, 2019

Employees and consumers, among other stakeholders, are increasingly calling on companies to take public positions on social issues. A new report from The Conference Board, for example, has found that 90 percent of employees believe it is “at least moderately important that the organization they work for be involved in social change.” The consequences of not doing so can be serious, as ENODO Global, a social risk advisory firm, notes.

In this Q&A, James Sisco, President of ENODO Global, discusses the rise of social risks and how companies can deal with them better.

What are social risks and why should companies be aware of them?

Social risk is defined as a company’s exposure to adverse consequences stemming from population-based activities and negative public perception. These risks manifest in the form of online activism, boycotts, protests, litigation, and sometimes violence. They are responsible for the removal of more CEOs in the past three years than in the past 30 years combined and are the primary source of disruption across the globe. Companies must realize and address their social risk exposure because social risk has steadily increased over the past five years and is projected to dramatically increase due to the continued rise of social movements and communications technology, which accelerates the spread of ideas and opinions.

Source: ENODO Global, 2019

Have companies positioned themselves adequately to manage social risks?

Not well enough. Unfortunately, the concept of social risk is new to most companies. Corporate executives tend to view risk through a traditional lens, focusing on geopolitical or cyber risks. Many have begun to focus more on reputational risk and social impact, which are directly connected to social risk, but they continue to rely on traditional techniques and strategies to safeguard their operations and brands. For example, companies hire public relations or communications firms, which are reactive in nature and mostly ineffective. Companies need to understand how social risk can impact their investments, operations, and personnel and create proactive strategies that manage social risk.

Why do you believe CSR efforts fall flat?

There are several reasons why CSR efforts fall flat. However, the primary reason is because they fail to address the underlying grievances and fulfill basic needs of a target group or population. For example, goals within the Bill and Melinda Gates foundation include accelerate progress to eradicate malaria; reduce HIV infections and extend lives for people with HIV; deliver life-saving vaccines where they’re needed most; and eradicate polio. Although ambitious efforts, they do not improve the daily lives of individuals or address underlying grievances. Moreover, small investments in sanitation and infrastructure can have significantly greater impact than immunizing communities.

Other factors can be attributed to a lack of local knowledge, the inability to see the world through the eyes of the target population, and the application of Western development practices into the design and implementation of CSR efforts. CSR initiatives are largely created in a vacuum, void of real-time awareness of public sentiment and perceptions, and represent programs designed to support a corporate philosophy or the philanthropic ideas of those who are “giving,” rather than the needs of those “receiving.”

How can companies make their CSR initiatives more impactful?

Companies can optimize their CSR programs by listening to those on the “receiving” end and aligning programs and initiatives to address their needs and concerns. Unfortunately, companies often rely on typical techniques to create programs. They use local partners who sometimes have their own agendas or surveys and focus groups, which generate prompted responses that represent a small sample set of the population.

Social media analysis is an untapped resource that enables companies to harness the power of the internet. It reveals unique insights by examining public conversations that discuss topics important in their daily lives. With an in-depth understanding of a target group or population’s underlying grievances and basic needs, companies can design effective programs and ultimately maximize social impact. Monitoring changes in public perceptions through online discussions also provides an avenue to accurately measure the actual impact of such programs, thus providing a much-needed tool to increase accountability and efficacy of CSR initiatives.

Chief Executives who are members of the Business Roundtable recently issued a statement regarding the “purpose of a corporation,” arguing that companies should no longer advance only the interests of shareholders. In your view, will this help improve CSR?

In theory yes, but in practice no. The evolution of CSR has proven that companies will continue to focus on profits until they realize the financial benefits of effective CSR programs. This latest effort by CEOs is akin to putting lipstick on a pig. Their words represent talking points designed to shape public perception, rather than a promise to affect real change moving forward. Companies will continue to market their CSR programs in quarterly reports and annual reviews. They will showcase their investments in education and communities to maintain favorable Environmental, Social, and Governance (ESG) ratings, but at the end of the day no meaningful changes to CSR will occur.