Hearing is a fascinating sensation

Manufacturers, Governmentand Customers in the Context of Corporate Social Responsibility

James RosensteinFellow in the Advanced Leadership Initiative, Harvard University

Herzogenrath, September 23, 2011

25 Years HEAD acoustics GmbH

– 2 – James Rosenstein25 Years HEAD acoustics GmbH

What is Corporate Social Responsibility?

Many definitions, but simply put:

• Anopportunitytocreatesharedvalue:atthenexusofcorporateassetsandexpertise, businessopportunitiesandsocialneed

• Theintegrationofthesocialandenvironmentaldimensionsofacompany’sactivities intoitsbusinessstrategy,valuesandcorecompetencies • Capitalismforthelongterm • Morethanphilanthropyoramarketingexercise

– 3 – James Rosenstein25 Years HEAD acoustics GmbH

Why is it important?

• Inherentconnectionbetweenthelong-termselfinterestofcorporationsandpublicinterest • Growingreachandscopeofprivatesector

• In1990,about37,000multinationalcorporationsintheworld.Today,over80,000

• Inthe1990s,70%ofcapitalflowsfromtheUStodevelopingcountrieswasintheformofpublic ODA;today,over70%ofthesecapitalflowsareprivate

– 4 – James Rosenstein25 Years HEAD acoustics GmbH

Why is it important?

• Crisisoftrust • GrowinginfluenceofNGOs

• Growingactivismoflargeinstitutionalinvestors

• Intangibleassets:reputation,stakeholderrelationships

• Sourceofinnovation

– 5 – James Rosenstein25 Years HEAD acoustics GmbH

Fromtheendofthewartothe1970s:

• AfterWWIIandtheGreatDepression,theUSeconomyanddemocracyworkingwell

• Unprecedentedwidely-sharedprosperity

• Inequalityofincomeandwealthdeclined

• Largermiddleclassemerged

• Systemforproducinggoodsandservicesfarmorepredictableandstable,moreconcentrated infewlargefirms,e.g.theBigThreeautomakers

• CEOsplayedtheroleofcorporatestatesmen

Historical Perspective: Case of the United States

– 6 – James Rosenstein25 Years HEAD acoustics GmbH

Case of the United States

Sincethe1970s:

• TechnologiesthatemergedfromtheColdWarchangedtheeconomy

• Newproductionsystemsenabledfragmentingandparcelingoutaroundtheworld– globalsupplychains

• Stableproductionsystemcrackedopen

• Companiesforcedtocompetemoreintensivelyforcustomersandinvestors, whowereabletotakeadvantageofthisnewsituation

• Largefirmsbecamefarmorecompetitiveandinnovative,drivenbyglobalization

–7– James Rosenstein25 Years HEAD acoustics GmbH

Case of the United States

• Intensifyingcompetitionspilledoverintopolitics

• LobbyistsswarmedWashingtonandothercities,seekingcompetitiveadvantage

• Moneyspentonlobbyingnow:over$3.47billionperyear

• Democraticprocessesoverwhelmed

• Single-mindedfocusonshort-termresultsandshareholdervalue

–8– James Rosenstein25 Years HEAD acoustics GmbH

Some of the Effects of this Evolution

• Economicinequalityhasreacheditshighestlevelsince1929

• CEOsalarieswentfrom30timestomorethan300timesthelowestwagein2010

• Atthesametime,medianincomehasfallencloseto5%overthelastdecade

• Increasingnumberofsocialproblems,including:higherinfantmortality,lowerlifeexpectancy, criminality,agrowingprisonpopulation,higherunemployment,obesity,malnutrition,teenage pregnancy,illegaldruguse,economicinsecurityandpersonalindebtedness,amongothers

• TheUShasaGinicoefficientalmostidenticaltothatofChina

–9– James Rosenstein25 Years HEAD acoustics GmbH

Implications for Manufacturers, Government and Customers

• 80%ofcustomerssaytheycareaboutsocialissues,butonly15%actonthatconcern

• Consumerbehaviorisdrivenmostlybypersonalutility–price,style,convenience

• Manufacturersaremainlydrivenbythebottomlineandcompetitiveadvantage

• Politiciansarelargelydrivenbylongevity,thedesiretostayinpower

–10– James Rosenstein25 Years HEAD acoustics GmbH

What will it Take to Restore the Basic Bargain between Business and Society?

For manufacturers:

• Leadershipthatiswillingtolookatthelongerterm

• Willingnesstounderstandtheinherentconnectionbetweenbusinessandsociety

• Opennesstotheconnectionbetweencompetitiveadvantageandsocialissues,often throughinnovation

• Willingnessandabilitytoengageinconstructivedialoguewithgovernment

–11– James Rosenstein25 Years HEAD acoustics GmbH

Basic Bargain between Business and Society

For manufacturers:

• Optimizedcontributionofexistingbusinessoperations

• Responsiblebusinessstandardsandaccountability

• Moreeffectiveboards–bettergovernance

–12– James Rosenstein25 Years HEAD acoustics GmbH

Basic Bargain between Business and Society

For government:

• Abilitytoestablishframeworks,regulatoryandother,thatpreserveandpromotesocialwelfare

• Abilitytoencouragebusinesstomeetagreedsocialandenvironmentalperformancecriteria

• Abilitytohaveaconstructive,lessadversarialrelationshipwithmanufacturers

For customers:

• Findwaystoovercomethecustomer/citizendivide

–13– James Rosenstein25 Years HEAD acoustics GmbH

Examples of Progress

• UScarmakerssupportingtheincreaseoffuelefficiencyfrom27mpg(8.7l/100km) to54.5mpg(4.31l/100km)by2025

• Gradualphase-in,incentivesforproducingbattery-poweredvehicles,hybridsand alternativefuelmodels

• Willingnesstounderstandandnegotiateonbothsides

–14– James Rosenstein25 Years HEAD acoustics GmbH

Examples of Progress

Danish government: • EncouragesinvestorsandcompaniestodevelopcommitmentandCSRwork

• MandatoryforlargebusinessestoreportonCSR

• SocialResponsibilityCounciltomakerecommendationsforthegovernment, corporationsandassociations

• FocusonCSRinstateprocurement,investmentsandstate-ownedpubliclimitedcompanies

–15– James Rosenstein25 Years HEAD acoustics GmbH

Nottounderestimatethe

inherenttensionbetween

theobligationtomaximize

shareholdervalueandthe

interestinmaintaininga

broader,socialimpact.

Thereareinevitabletrade-

offs,andallcompanies

havetofacethem.

–16– James Rosenstein25 Years HEAD acoustics GmbH

How is it paying off?

• Newproductsandmarkets

• Enhancedproductdifferentiation

• Interestingareasofinnovation,e.g.businessatthebaseofthepyramid,socialentrepreneurship

• Hybridmodels,addressingdevelopmentproblemssuchasashealthcare,education

• Betteroperationalefficiency

• Lowercosts

• Morecommittedandmotivatedstaff

• Greatersupplierreliability

• Improvedreputation