Editor’s Note: This article is republished with permission from the blog of The Corporate Responsibility Officer’s Association.
On the day I wrote this, I looked at the Wall Street Journal and found stories about net neutrality and the regulation of saturated fat. What do these stories have in common? In both cases, social issues are intertwined with political, legal and regulatory agendas. As a result, companies today must manage not only customers and product creation, but also to stakeholders within the social and political arenas.
A recent article in Organizational Dynamics by J.Doh, et al., states:
Companies increasingly face concurrent and sometimes coordinated pressures from governmental and civil society stakeholders within the ‘nonmarket’ (political and social) environments in which they operate.
The article goes on to caution that many companies underappreciate these challenges from the “nonmarket arena,” and therefore “relegate their external affairs function to a lower level status than it should be accorded.”
These observations ring true, in my experience as a CFO for a large privately held real estate firm, and in my assessment of many of the organizations I watched face challenges. Perhaps it is time to broaden the role of the Chief Responsibility Officer to include political and legal issues.
One company I am aware of has already done so. American Electrical Power’s C-Suite includes the position of Chief External Officer. This role is responsible for governmental affairs, environmental affairs and services, corporate communications, safety and health, corporate sustainability, strategy policy analysis, corporate security and aviation, and real estate and workplace services.
So how do you know if your organization needs a high level external affairs officer, or perhaps even a chief external officer? And if you do need it, how do you structure such a position? Should this position be focused on political and legal affairs, or instead, corporate social responsibility challenges?
The authors of the Organizational Dynamics article suggest that companies need to evaluate the dominant nonmarket forces affecting their organization. Are these forces predominately of a political orientation or related to social responsiveness? Political orientation relates to companies whose nonmarket challenges are driven by political and regulatory constraints (for instance the airline industry and pharmaceutical industry). Highly politically oriented firms often integrate government activities and political events into the strategic decision making process.
Alternatively, social responsiveness relates to companies that are highly focused on social responsibility (for instance the extractive and construction industries). As the importance of social responsiveness grows, the organization increasingly considers CSR to be a market differentiator. Strategy begins to incorporate CSR considerations and the Chief Responsibility Officer gains prominence within the organization.
Obviously, the integration of a political orientation or a social responsiveness in to the strategic planning process of an organization is easier when a company has either a high political orientation or a high social responsiveness. However, when an organization operates in an environment that requires both high political orientation and high social responsiveness, the traditional separation of the political/legal affairs and the social responsiveness functions may no longer be realistic or strategically viable. To that end, the authors of the Organizational Dynamics article suggest that organizations consider the creation of the position of Chief External Officer. Such a senior level position is designed to integrate the political/legal affairs and social responsiveness functions into one effort.
In order to integrate the political/legal affairs function and the social responsiveness function, the authors suggest a four-stage process that the organization should follow.
- Step 1 – Initiate: Create the conditions and urgency for the integration. Involve the top management team as well as the political/legal affairs and social responsiveness teams. A timeline and plan should be created for the integration process.
- Stage 2 – Resource: Provide the necessary resources to be successful. Top management must be willing to allocate sufficient, human and financial resources to insure success, not only of the process, but of the ongoing operation of the newly integrated function.
- Stage 3 – Establish: In this stage, the new integrated office is established and its links to other groups and departments within the organization is defined. This stage includes both top management and the organization’s communication team. Communication about the new function and its purpose are key in this stage.
- Stage 4 – Implement: Gain organizational agreement and disseminate the strategic priorities of the new office. The newly appointed Chief External Officer is vital to this effort. The key initiatives and objectives are communicated throughout the organization.
Of course, this process also involves high attention to the people that are involved and affected by such a significant change. Top management must consider the implications for the personnel involved and make sure that everyone understands why such a change is important to the organization. Support for such a key change initiative is critical to its success.
Dr. Kevin Lynch is Leadership Executive-in-Residence at the Center for Values-Driven Leadership. As a practitioner, academic and consultant, Kevin specializes in assisting organizations that are experiencing rapid change, particularly with regard to strategic growth decisions, and the implementation of appropriate organizational infrastructure. Before joining the Center, Kevin was a senior executive in the real estate industry. He also is co-owner of Williams and Hall, a wilderness canoe outfitting business in Ely, Minnesota.