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Social Value Added: A Metric for Implementing Corporate Sociai Responsibiiity

AT&T's SVA tool helps quantify

the value of EH&S activities

Despite the fact that "corporate social re- sponsibility," or CSR, is one of the hottest current cor- porate buzzwords— and an increasingly popular course sub- ject in many busi- ness schools—there is little consensus on what the concept actually includes. In part, this is be- cause the current reincarnation of the term is not a simple extension of past experience, but repre- sents a new confiuence of a number of previously independent trends.

In this article, we offer some background on CSR, including some of the more recent policy developments that have driven expansion of the concept. We then describe and illustrate a metric that AT&T has developed for measuring social value added. This metric has helped AT&T under- stand the advantages of implementing CSR activ- ities; we believe it could be of use to many other organizations as well.

Background: A Brief History of CSR The idea that institutions have responsibili-

ties to the broader society within which they function is clearly ancient. Business activities

have long been constrained by moral dictates (reli- gious edicts against usury, for example). Religious and civil authorities have often judged and controlled business

activity based on behavior, economic activity, and the hke (Epstein, 1987).

That this idea of reciprocal privileges and du- ties would extend to corporations as they began to evolve in their modern form is not surprising. The medieval merchant and craft guilds, and the subsequent royal charter trading companies, were entrusted with social expectations that reflected the ethical structure of their times.

Many of these implicit expectations bridged over with the advent of the truly modern firm, a creature of general incorporation laws under which any entity meeting statutorily defined cri- teria was able to incorporate. (The first of these laws was passed in 1811 by New York State.)

Even though the incorporation laws created a structure where responsibility to shareholders

Clair Krizov and Brad Allenby

was paramount, this injunction has never pre- vented firms in virtually all countries from en- gaging in philanthropy, outreach, employee sup- port, and other activities that reflect a broader social role (Allenby, 1997). As the Committee for Economic Development (1971) notes:

[B]usiness functions by public consent and its basic purpose is to serve constructively the needs of society—to the satisfaction of

society. Business has a responsibility for economic effi- ciency—the core responsibility. Out of that responsibil- ity comes a need to be sensitive to so-

Many global firms now produce annuai sustainability reports tbat are eitber in addition to or incorporate tbeir previous environmental reports.

cial values and pri- orities when per-

forming the economic function.

Modern-Era Policy Developments The firm's historic responsibility to behave

somewhat ethically has in the past few decades been significantly augmented by four additional policy developments, as discussed below.

Ttie Environmental Movement The first factor is the increasing power of the

environmental movement. This movement has a long history but exhibited a significant increase in activism and importance beginning in the late 1960s, especially in developed countries (Chou- cri, 1993).

The Human Rights Movement The second factor is the human rights dis-

course. This movement also has deep historical roots (in antislavery activities and child labor leg- islation, for example) but accelerated signifi- cantly in scope and scale after WWII. Article I of

the United Nations Charter established as a core purpose of the UN the promotion of relationships among states "based on respect for the principles of equal rights and self-determination of peo- ples," an approach confirmed in the subsequent Universal Declaration of Human Rights of 1948.

The subsequent evolution of human rights, and the rise of nongovernmental organizations (NGOs) dedicated to that cause around the world, has fundamentally changed the relationships among nation-states, firms, communities, and in- dividuals (Sassen, 1996).

Sustainable Development The third element is the growth of the con-

cept of "sustainable development," an effort to integrate environmental and economic develop- ment values.

The concept originally was popularized by the World Commission on Environment and Devel- opment (1987). Subsequently, the idea that cor- porations should be agents of "sustainability," in addition to their statutorily defined role as profit centers, has taken hold, and has been enshrined in the idea of the "triple bottom line," which states that firms should attempt to perform well not just economically, but also socially and envi- ronmentally.'

At least from a public relations perspective, the result of the sustainable development trend is certainly apparent: many global firms now pro- duce annual sustainability reports that are either in addition to or incorporate their previous envi- ronmental reports.^

Civil Society's Reaction to Unethical Corporate Behavior

The fourth factor, of course, is a continuing reaction by civil society against perceived un- ethical behavior by firms. From the 1960s through the 1980s, reaction against corpora- tions tended to center on their involvement in

40 / Winter 2004 / Environmental Quality iVIanagement Clair Krizov and Brad Allenby

unpopular wars (e.g., tbrough production of na-

palm) and on tragedies such as the Bbopal re-

lease of toxic fumes from a cbemical facility,

which killed thousands.

More recently, social disapproval has focused

on the criminal mismanagement of large firms in

the United States and Europe and disparities in

pay between top executives and workers.

The Evolution of CSR Taken together, the effect of this "perfect

storm" of discourses, issues, and communities,

and the rise of nongovernmental organizations as

independent centers of perceived authority, has

profoundly changed the governance structure

within which firms conduct their business (Math-

ews, 1997). Thus, not only is the meaning of CSR

in the modern context less clear than it has been

for centuries, but the governance structure within

which CSR occurs is also increasingly undefined

and ambiguous.

This has important implications. It may be

relatively easy for parties to verify, and eventually

agree on the validity of, financial or scientific

data. But almost by definition, "social responsi-

bility" is a matter of values as well as performance

metrics. The question of "whose values" one sup-

ports remains open and contentious.

The Eiements of Corporate Sociai Responsihiiity

Lack of Clear Definitions As the above discussion suggests, a major

problem regarding CSR is that there is no general

agreement about its meaning from an opera-

tional or a managerial point of view. Although

somewhat dated, Friedman's (1970) comment is

perhaps more true now than it was then: "The

discussions of the 'social responsibilities of busi-

ness' are notable for their analytical looseness

and lack of r i g o r . . . . The first step toward clarity

A major prohienn regarding CSR is that there is no generai agreement

about its meaning from an operational or a managerial point

of view.

in examining the doctrine of the social responsi-

bility of business is to ask precisely what it im-

plies for whom."

Almost all of the existing definitions of CSR still

generally reflect vague concepts—desirable actions,

socioeconomic welfare, activities beyond the firm's

direct economic or technical interests, ethical con-

sequences, voluntarism, satisfaction of society, so-

cial order, behaviors congruent with prevailing so-

cial norms, human competence, responsiveness,

beneficial rather than adverse affects, social legiti-

macy—rather than operational terms. (Although

some such standards do exist. They are codified in,

for example, antifraud and worker health and

safety laws.)

This lack of rigor is

frustrating both from

an academic perspec-

tive (because such lan-

guage fails to provide a

basis for empirical re-

search) and for compa-

nies (because the gen-

erality of the exhortations is difficult to translate

into organizational behavior, or into design and

operation of products and services).

A Changing Kaleidoscope of Issues Of course, there have been efforts to put

substance around the concepts—not through

definitions, but through discussions around the

definitions.

For instance, in the 1950s and 1960s, societal

values noted in the literature included concerns

with pricing policies; shady sales inducements;

support of the arts; organizational pressures on

employees; involvement in military production;

antitrust activities and self-dealing; politics; wel-

fare of the community; education; and the "hap-

piness" of employees.

In the 1970s, other elements surfaced as

major components of CSR: working conditions;

Social Value Added: A Metric for Implementing Corporate Social Responsibility Environmental Quality iVIanagement / Winter 2004 / 41

There is very iittie tliat firms do, or might do, that has not at one time or another been associated with CSR.

product safety; environmental effects; fraudulent advertising; employment inequities; community- oriented programs; environmental conservation; labor policies; consumer transparency; fair treat- ment; protection from injury; poverty and urban blight; racial discrimination; pollution; urban decay; employment of minority groups and asso- ciated affirmative action policies; greater partici- pation in programs to improve the community; medical care; industrial health and safety; Third World dealings; employee whistle-blowing; dis- tributive justice; employee rights on and to the job; sexual harassment; affirmative action for women; and bribery of foreign officials.

In the 1980s and 1990s, the CSR focus shifted toward still other issues: white- collar crime; business indictments for al- leged criminal acts; overcharging in de- fense projects; envi- ronmental disasters;

employee communications, training, and devel- opment; career-planning; retirement and termi- nation counseling; layoffs; redundancies; plant closings; stress and mental health; absenteeism and turnover; health and safety; employment eq- uity and discrimination; women in manage- ment; performance appraisal; day care; public policy; trade associations; flexible work hours; unemployment programs; and employment of children, especially in developing countries (Ep- stein, 1987).

Input from NGOs Civil society has also been an uneven source

of prioritization regarding CSR. While NGOs fre- quently and visibly campaign on various aspects of CSR, the ad hoc and single-issue character of such organizations provides neither a compre-

hensive guide to CSR nor the assurance that all aspects of CSR will be equally weighted.

Input from Business-Oriented Research Business-oriented research organizations,

such as the Conference Board, have been very ac- tive in attempting to help companies understand the demands of the environment within which they are now operating. But here again, achieving a comprehensive approach has been difficult.̂

Input from Socially Responsible Investment Funds and Groups

A relatively new source of input consists of the socially responsible investment funds and invest- ment indexes, such as the Dow Jones Sustainability Group Index, and special interest groups, such as the Council on Economic Priorities (CEP), which have begun rating corporations on CSR issues.

For instance, the CEP has rated corporations on their impact to the environment; support of minorities; advancement of women; contribu- tions to charities as a percent of income; treat- ment of workers; and family benefits, such as flexible work arrangements and paid leave (Council on Economic Priorities, 2000).

AT&T'S Sooiai Value Added Tooi

Making Sense of CSR It is apparent from the above discussion that

there is very little that firms do, or might do, that has not at one time or another been associated with CSR. This raises a number of risks: that firms will ignore the concept completely as being im- possible to operationalize; that firms and different stakeholders will come into conflict over claims regarding CSR because they may have different operational concepts about what CSR means; or that ideological conflict may negate otherwise de- sirable initiatives (in the latter case, the best can become the enemy of the good if companies re-

42 / Winter 2004 / Environmantai Quality iVIanagement Clair Krizov and Brad Allenby

fuse to implement CSR projects because it only

draws NGOs to attack them). Some of these risks

can be managed; others can only be accepted.

In evaluating its approach to CSR as that con-

cept integrates with environmental and safety

functions, AT&T's environment, health, and

safety (EH&S) group identified one risk to which

it could respond, and which it could reduce: the

risk that firms may regard CSR as mere philan-

thropy and not as an economically justifiable ex-

penditure of corporate resources.

In understanding this approach, it is useful to

refer to a comment by Epstein (1987):

Business organizations and those who run

them have a crucial role to play in achiev-

ing that [good] world. The search for eco-

nomic efficiency constitutes the core of the

Science of Management, and efforts to

achieve justice and peace by means of the

sensitive and effective management of val-

ues lies at the heart of the Art of Manage-

ment. Together, these two endeavors can

contribute to a society which is both ra-

tional and humane, reasoned and civilized.

The achievement of this duality within the

American Business Civilization is what the

corporate social policy process is all about.

Fashioning a Practical CSR Tool Thus, the challenge as AT&T EH&S under-

stood it was to integrate the science and art of

management in a practical CSR tool—that is,

without denigrating the social contributions of

corporate CSR activities, demonstrate that they

made sense from the company's operational per-

spective as well, and do so in an intellectually rig-

orous and (if possible) quantitative way.

CSR anti the EH&S Mission There are, of course, many things that organ-

izations do that are not in a broad sense CSR, but

AT&T's EH&S organization also pursues stakeholder management,

which includes EH&S's contrihution to social responsihiiity.

are required activities; compliance and remedia-

tion are obvious examples.

At AT&T, however, as in many companies, the

EH&S organization's responsibilities do not stop

at compliance. AT&T's EH&S organization also

pursues stakeholder management, which includes

EH&S's contribution to social responsibility.

Stakeholtier Management "Stakeholders" is a very inclusive category. It

includes employees; shareholders; communities

around the world; individuals that come into

contact with AT&T's services in one way or an-

other; NGOs (ranging from the responsible to the

highly targeted and ac-

tivist); and govern-

ment regulators and

policy formulators,

both environmental

and otherwise.

Each community

may have its own in-

terests in a company's

positions and actions, ranging from receiving

funds to collaborating on policy initiatives to

simply expecting responsible corporate behavior.

Thus, critical responsibilities of stakeholder

management include stakeholder communica-

tions; strategic planning to ensure that AT&T's

EH&S policies, direction, and performance align

with external expectations; research regarding the

social and environmental implications of AT&T,

the telecom sector, and the service industry gener-

ally; and support of the external EH&S community,

including not-for-profit EH&S-related initiatives.

The stakeholder management function thus

requires investment—investment that is clearly

CSR in practice.

Social Value Added Tool Traditionally, there are those who have con-

sidered investments in stakeholder initiatives.

Social Value Added: A Metric for Implementing Corporate Social Responsibility Environmental Quality Management / Winter 2004 / 43

from supporting not-for-profit organizations and

activities to the more traditional academic grant

support, to be purely philanthropic—correspond-

ing perhaps to Epstein's Art of Management.

AT&T, however, combines this Art of Manage-

ment with the Science of Management by using

an in-house-created Web-based tool, tbe Social

Value Added (SVA) tool.

"SVA" was chosen as the designator because it

tracked other metric systems—Consumer Value

Added (CVA), Personnel Value Added (PVA), and

tbe like—tbat were already used at AT&T. Tbe

name tbus reduced the sense of change or inno-

vation that would be associated with use of the

tool.

As a general rule,

dating back to AT&T's

adoption of Design for

Environment in the

early 1990s, we bave

found tbat acceptance

of cbange is directly

proportional to tbe de-

gree to whicb tbe

cbange can be made to appear nontbreatening

and incremental to existing practices.

Using the SVA Tool For several reasons, it made sense wben con-

sidering bow to construct an SVA tool to look at

financial analogs. Eor one, tbeir performance and

strengtbs and weaknesses were generally known.

Eor another, using such analogs gave a sense of fa-

miliarity and gravitas to the new tool, since tbose

using it respected tbe results of tbe financial cal-

culation process.

Accordingly, tbe SVA tool measures AT&T's

EH&S-related initiatives based on tbe net oper-

ating profit margin financial ratio, a ratio used

by for-profit enterprises as an overall measure of

operating effectiveness. Tbe ratio is calculated

as follows:

For several reasons, it made sense when considering how to construct an SVA tool to look at financial analogs.

[(Sales - CGS - SGA) / Sales] X 100

wbere "CGS" is "cost of goods sold" and "SGA" is

"selling, general, and administrative" expenses

(in otber words, the general cost of running the

business).

Eor EH&S-related initiatives, AT&T turns the

ratio into the following:

[(Total benefit - Total cost) / Total benefit] X 100

Eacb of tbese components in turn is broken

down into definable quantities, as described

below.

• Total Benefit AT&T determines total benefit by calculating

(1) tbe potential retained, or gained, revenue as-

sociated witb an EH&S-related initiative and (2)

tbe estimated media value of AT&T EH&S-sup-

ported initiatives.

AT&T converts tbe external exposure pro-

vided by an EH&S-related initiative into a poten-

tial retained, or gained, revenue figure. Tbe con-

version is done by calculating tbe number of

people exposed to the AT&T-supported initiative

and then multiplying tbat number by botb tbe

estimated percent of Americans wbo make tbeir

purcbasing decisions based on a company's EH&S

record and by tbe estimated monthly telecom-

munications services expenditures of tbe average

American.

Tbe estimated media value converts tbe "free"

publicity associated witb tbe EH&S-related initia-

tive (sucb as mention of AT&T's support of tbe ini-

tiative in tbe organization's membersbip newslet-

ter or Web site) into a dollar figure. Tbe estimated

media value is converted by using tbe Bacon Media

Guide, a source tbat provides tbe estimated cost of

a typical advertisement in a publication based on

circulation size, or people exposed, and tbe num-

ber of column incbes (or minutes, if tbe exposure

is via television or radio). Tbus,

44 / Winter 2004 / Environmental Quality iVIanagement Ciair Krizov and Brad Alienby

Total Benefit = [(# of people exposed to tbe

initiative) X (% of Americans wbo make

purcbasing decisions based on a company's

EH&S record) X (estimated monthly spending by

an American on telecommunications services)]

+ (estimated media value of tbe "free" publicity)

• Total Cost Total cost for an initiative is determined by

adding tbe estimated AT&T labor expenses asso-

ciated witb tbe initiative, based on tbe time in-

volved, to tbe dollars invested in tbe initiative,

such as tbe dollar amount of a donation:

Total Cost = (AT&T labor cost) + (Dollars spent)

Versatility of the SVA Tool Exhibit 1 sbows an example of an SVA cal-

culation using bypotbetical data. At AT&T EH&S,

every investment (sucb as a donation) tbat is not

de minimis in tbe portfolio bas sucb a calculation

run on it.

AT&T's SVA tool allows social value added to

be calculated in wbatever way facilitates an orga-

nization's analysis of its investments. SVA can be

calculated:

• for AT&T EH&S's investment portfolio as a

wbole;

• for an EH&S-supported organization's invest-

ment portfolio as a wbole;

Exhibit 1 . Sampie SVA Caicuiation

AT&T's Sociai Vaiue Added (SVA) Report List

Category: Aii Date Range: 01/01/03 - 12/31/03 Org Codes:

Activity

Contributions- Monetary ABC Organization • River Cleanup • Donation Pubiicity-Agenda

and Programs ABC Organization •

River Cleanup • Newsietter Pubiicit)

Time to Implement

0.75 hrs

2.5iir3

TV Radio Time

Omin

Coverage Size

Column Inch

6.5

# of Invites or Promos wlAT&T

Referenced

# o f People

Exposed

350

Est Market Value

Est. Value of

Labor

$38

$125

Dollars Spent

$5,000

Est Total Cost

$5,038

$125

Est. Revenue

Potential of Audience

$105

Est. Value of

Media

$65

Est. Vaiue of Cost

Avoidance

Est. Total Benefit

$170

Net Vaiue

-$5,038

$45

SVA Operating

Profit Margin

26.47%

Note: All figures are hypothetical.

Estimated Totai Benefit •Estimated Revenue Potential of Audience: (350 peopie exposed) X (3% of Americans make purchasing decisions based on a company's EH&S Performance) X ($10 estimate of monthly spending by Americans on teiecommunications services each month) = $105 •Estimated Vaiue of Media: (6.5 column inches) X ($10 ad cost in pubiication of similar circuiation) = $65 •Estimated Total Benefit = $105 + $65 = $170

Estimated Totai Cost •Estimated Labor Cost: (2.5 hours) X ($50 per hour) = $125 •Dollars Spent: ($0 spent) = $0 •Estimated Totai Cost = $125 + $0 = $125

SVA: [[($170 Totai Benefit) - ($125 Totai Cost)] / ($170 Total Benefit)] X 100 = 26.47

Sociai Value Added: A Metric for Implementing Corporate Sociai Responsibiiity Environmentai Quality iVIanagement / Winter 2004 / 45

• by issue (e.g., safety, telework, water, or air policy);

• by activity category (e.g., contributions, dues, exhibits, research support, or awards); or

• by individual project.

The SVA tool also allows the firm to establish the activity category and EH&S-related issue at the level of detail desired. For instance, an activ- ity category may be "monetary contribution" or "service contribution," and the issue can be spe- cific (as in air, water, industrial ecology, or recy- cling) or just overall "environment."

Conclusion There are several important points worth not-

ing about this relatively simple methodology. An obvious one is that SVA is calculated for a point- in-time. In other words, the SVA tells AT&T the effectiveness of its investment in the EH&S-re- lated initiative as of a certain date.

Additionally, it must always be remembered that, especially in as broad an arena as CSR, a tool like the SVA calculator is only one input to the deliberative process. Stakeholder contributions and academic grants are provided for many rea- sons, only some of which are captured and quan- tified by any such tool.

While the SVA tool does provide AT&T with a means of prioritization by allowing comparison of an EH&S initiative's total benefit and total cost prior to making an investment, it is never the only factor upon which such decisions are based (although it may make the difference in close decisions).

This is an important qualification to keep in mind, especially when SVA numbers are used within corporate communities, such as the CFO organization, that are accustomed to operating on a fairly quantitative basis. AT&T EH&S has found an interesting "halo effect" as we have used this tool, however. The very fact that we

have taken the initiative to develop and deploy this tool tends to reassure internal critics (who might otherwise be highly critical of more intu- itive approaches to the donation and grant port- folio) that EH&S is taking a responsible and ra- tional approach to managing that portfolio.

Finally, it must be remembered that this tool reflects the value of a CSR investment to the firm and is a reflection of the firm's interests. It does not capture the value of the investment to other communities or to society as a whole. While this means that the tool is necessarily limited, it also has the advantage of not requiring that differ- ences in ethical or political values be quantified and calculated, a problem that many broader ap- proaches may have.

Firms, NCOs, regulators, and others will no doubt continue to struggle to define and imple- ment CSR for a long time. The history of CSR is ambiguous, intimately tied as it is to the evolu- tion of capitalism and market economies. It may become more so in periods of rapid economic, so- cial, and cultural change.

This confusion and disorder may be discon- certing, but it is most likely healthy, in that it encourages organizational and institutional in- novation, and the development of new ap- proaches that offer the promise of better inte- gration of economic, social, and environmental values and goals.

The SVA tool discussed here is certainly no panacea, but it is perhaps an aid in understand- ing and implementing CSR in today's firm.

Notes 1. Previous articles in this journal have applied the triple-bot- tom-line approach to issues such as telework and the evolution of the netcentric firm (see, e.g., Allenby & Richards, 1999).

2. It would be unfair to the large number of firms that produce such reports to cite only a few. AT&T's online report at http://www.att.com/ehs/ is not atypical, however. Some are more elaborate, and a few companies have outside parties "validate" their reports, an approach originating primarily in Europe (BS 7750 and the EMAS methodology being exam- ples). Given the nascent state of the art, the lack of standard-

46 /'Winter 2004 / Environmental Quality Management Clair Krizov and Brad Allenby

ized metrics and methodologies (and thus incomparability among different reports) and the expense involved, it is not clear to many firms what external validation accomplishes.

3. An idea of the difficulty of understanding and implement- ing CSR can be obtained simply by considering just a few of the publications the Conference Board has prepared over the last few years for its members. A partial list would include "The expanding parameters of global corporate citizenship" (1246- 99-CH); "Company programs for resisting corrupt practices: A global study" (1279-00-RR); "Perspectives on a global econ- omy: Are poor nations closing the gap in living standards?" (1263-00-RR); "Innovative public-private partnerships: Public safety initiatives" (1253-99-RR); "Doing good and doing well: Making the business case for corporate citizenship" (1282-00- RR); "Global corporate ethics practices: A developing consen- sus" (1243-99-RR); "Consumer expectations on the social ac- countability of business" (1255-99-RR); "The link between corporate citizenship and financial performance" (1234-99- RR); and "Building the corporate community economic devel- opment team" (1205-99-RR). And this list doesn't even include the flood of studies that have responded to the recent Enron, MCI-Worldcom, Ahold, and Parmalat frauds. Moreover, other business organizations—notably the World Business Council for Sustainable Development—have been equally prolific.

References Allenby, B. R. (1997). Environmental constraints and the evo-

lution of the private firm. In D. J. Richards (Ed.), The indus- trial green game: Implications for environmental design and management (pp. 101-116). Washington, DC: National Acad- emy Press.

Allenby, B., & Richards D. J. (1999, Summer). Applying the triple bottom line: Telework and the environment. Environ- mental Quality Management, 8(4), 3-10.

Choucri, N. (1993). Global accord: Environmental challenges and international responses. Cambridge, MA: The MIT Press.

Committee for Economic Development. (1971). Social re- sponsibilities of business corporations. New York: Author.

Council on Economic Priorities. (2000). Shopping for a better world. New York: CEP Books.

Epstein, E. M. (1987). The corporate social policy process: Be- yond business ethics, corporate social responsibility and cor- porate social responsiveness. California Management Review, 29(3), 99-114.

Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. New York Times, pp. 122-126.

Mathews, J. T. (1997). Power shift. Foreign Affairs, 76(1), 50-66.

Sassen, S. (1996). Losing control: Sovereignty in an age of globalization. New York: Columbia University Press.

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Clair Krizov is Executive Director of Environmental and Social Responsibility at AT&T and is a doctoral student at the Georgia Institute of Technology Public Policy School.

Brad Allenby is former Environment, Health, and Safety Vice President at AT&T, and a professor at Arizona State Uni- versity in the Ira A. Fulton School of Engineering, Department of Civil and Environmental Engineering.

The opinions expressed In this article are the authors' and not necessarily those of any organization with which they are associated.

Social Value Added: A Metric for Implementing Corporate Social Responsibility Environmental Quality Management / Winter 2004 / 47