Manufacturing & Society: Creating Value With Values

Jan. 14, 2005
Manufacturers have a responsibility to the society of which they are a part. And manufacturing's executives have five tasks they must make their own.

A helicopter hovers against a stormy sky, dropping a rescue line toward an unseen person apparently adrift in a roiling sea. Above the helicopter -- in this striking Rockwell Collins print advertisement -- are two simple words: "Trust matters."

But trust whom?

Thirty-five years ago this month, Walter J. Campbell, then the editor-in-chief, wrote in IndustryWeek's first issue, "The challenge of this decade will be to the industrial manager to provide the solutions to our great problems. It will be to unleash the dynamics of the private sector to provide the housing, the transportation, the environmental control, the medical care, the education and the other things this country must have. It will be to find a mechanism to put the initiative and the enterprise of the people of industry to work -- and to make a profit in doing so."

The challenge of this decade, the first decade of the 21st century, is broader and more complicated. Given recent examples of corporate excess, misgovernance and unethical practices, there is a legitimate question whether manufacturing and its executives can be trusted with providing solutions to today's great societal problems: education, energy, health care, poverty and resource management. Will the hovering helicopter help lift society to new heights -- or force society to struggle against dangerous downdrafts? Yet there is an even more basic question that demands answering, particularly in the context of an economically interdependent and highly competitive world. And that question is: Does manufacturing have any social responsibility?

The direct answer is that manufacturing does have social responsibility. But social responsibility is more than the kind of societal problem-solving Campbell wrote about in January 1970. It is also about more than ethics, narrowly defined, or integrity or honesty -- and certainly more than about giving dollars to the United Way. As both manufacturing executives and those who would advise them increasingly are recognizing, social responsibility is about creating value with values. "A premier company is not just a company that makes a lot of money," stresses Steven R. Loranger, the president and CEO of ITT Industries Inc., White Plains, N.Y., since June 2004. "It means something to me . . . to play the game with the highest standards," emphasizes Loranger, who says he was attracted to ITT Industries in part by its strong values culture. Johnson & Johnson, Hewlett-Packard Co. and Intel Corp. are among U.S. manufacturers often cited for their sense of social responsibility -- as was Merck & Co. until questions were raised in 2004 about its Vioxx pain medication.

But U.S. manufacturers don't always act as if they recognize the integral role of social responsibility in business. For example, despite some credible data to support their assertions, the National Association of Manufacturers and single-industry trade groups do themselves a disservice by repeatedly blaming "unwise government policies" and "external costs" for putting U.S. manufacturers at a competitive disadvantage. They leave the impression, intentional or not, that manufacturers would be better economic performers if only they were allowed to be, well, just manufacturers. The reality, however, is that if business has ever been the sole business of business, it is no more. Because plants employ millions of people, because people are the innovators in hundreds of R&D centers, because thousands of people do creative sales and marketing, because people are present in every link of the value chain from suppliers to customers, because people and the communities where they work and live also are wealth creators, manufacturing is a part of society and not apart from it. "In addition to being an employee of this company, where I have to balance our resources, I am a citizen," stresses ITT Industries' Loranger. "And I do want to live in an environment where companies are socially responsible."

What Loranger says is true in the United States -- and beyond U.S. borders. In fact, for manufacturing executives one of the inescapable consequences of globalization is an increased need for them to deal with issues of corporate social responsibility. "If you find yourself as an organization increasingly operating in a developing country context, you will . . . find these questions of social responsibility becoming more relevant," advises N. Craig Smith, associate dean of the London Business School. "There are certain times when people have to stand up and be counted. And making money for its own sake, knowing that you are taking advantage of other people in less-developed parts of the world is unconscionable," states Robert Spekman, a professor at the University of Virginia's Darden School in Charlottesville.

There used to be a school of thought -- perhaps still in session here and there -- that profits inevitably corrupt, that real money compromises abstract principles. It's a school that dismisses corporate social responsibility pretty much as a contradiction in terms. Yet what is now remarkable is how many people -- including manufacturing executives -- are at least talking about what's appropriately described as capitalism with a conscience. "Alongside our commitment to innovation, competitiveness and performance, we are led by our core values and high ethical standards; values of honesty, openness, trust, and respect for the individual and diversity; support for each other, and leadership by example," states Tom McKillop, CEO of AstraZeneca PLC. "Our [corporate responsibility] effort is focused on ensuring that we 'walk the talk' consistently. Our corporate conscience demands it. Our reputation and continued success depend on it."

Indeed, one of the biggest mistakes the corporate social responsibility movement makes is in trying to separate economic value-added from social value-added, asserts Jane Nelson, a senior fellow and director of the Corporate Social Responsibility Initiative at Harvard University's Kennedy School of Government in Cambridge, Mass. "The economic multipliers of a company -- the products and services it produces, the wages it pays, the taxes it pays, the technology it develops and . . . transfers to other countries, the institutional structures it sets up, like chambers of commerce, [and] the small-business linkages that many companies have -- are all part of [their] societal impact and social responsibility," contends Nelson, the co-author of "Profit with Principles" (2004, Currency/Doubleday). "The core social responsibility of any company is staying in business," she states.

A company has a responsibility to stay in business, agrees Charles Handy, but, stresses the former Royal Dutch Shell executive and London Business School professor now better known as a management guru and social philosopher, "to do it decently for all concerned." A company, he says, has a responsibility "to produce safe products and to service them properly and to treat its customers respectfully." It has a responsibility to employees "to give them meaningful work, the opportunity to develop themselves and a reasonable balance between their work lives and their other interests." It also has a responsibility "to be a good corporate citizen," paying proper taxes, protecting the environment, and, particularly if a manufacturer is the major employer in a community, lessening the blows "if they possibly can" when the company closes a plant or relocates, says Handy.

Not every manufacturing executive is likely to agree with everything on Handy's list. But defining social responsibility for their companies -- their responsibilities to their employees, their communities, their suppliers and, if they are publicly traded, their shareholders -- is one of the five critical tasks that senior manufacturing executives, especially CEOs, face. If their companies are to meet their social responsibilities, these executives must also devise strategies, lead their execution, partner with others to help achieve goals and put principles into practice every day. "I do wake up in the morning actually saying to myself, 'Have I put all the controls in place? Have I communicated the right level of philosophy? What can I do today to create a better environment for our employees, to make sure we can use it as a competitive differentiator and to make sure that we are doing the right things," says ITT Industries' Loranger.

Beginning in March and running through November, IW will explore each of the five social responsibility jobs that manufacturing executives must make their own. The upcoming essays will include proven practices and those with promise.

In the meantime, manufacturing executives might apply the Ben, Emma and Molly test to their companies' actions. Ben, Emma and Molly are the children of R. Edward Freeman, a professor at the Darden School and academic director of the newly created Business Roundtable Institute for Corporate Ethics. "If I go home at the end of the day, explain to my kids what I did that I am proud of, [and] what I want them to learn from, we've got the bar in the right place," says Freeman. "I actually look at the hope in the world as being in business. That's where we create value. And we have to make our corporations places where we want our children to create value as well."

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