Lexicon
What is corporate citizenship?
What is corporate citizenship? It’s a concept relating to a company’s efforts to be accountable to other stakeholders besides shareholders.
It’s a newer concept and a departure from the traditional model of many Western businesses, where shareholders are paramount.
That said, it is increasing in importance regardless of whether the term surfaces in your boardroom or not. More and more these days, good governance is defined by your ability to respect the wishes of those who don’t have shares in the business but who your business impacts in one way or another.
What is corporate citizenship?
Corporate citizenship refers to the extent to which businesses are socially responsible for their actions and the impact these actions have on society.
It might sound like it’s about just being philanthropic, but true corporate citizenship goes deeper. In reality, it has much to do with environmental, social and governance (ESG) principles.
This means ideas such as reducing emissions, reducing waste, respecting employee welfare and engaging in positive community outreach programmes.
Firms that practice strong corporate citizenship embed these principles within their company strategy, meaning they can create financial success while considering every group of stakeholders their work impacts.
Think of it as the most holistic, rounded approach to modern business.
Why is it important?
That’s the trickiest part. Why should we give this so much attention, especially when it might appear to go against fiduciary duty at the surface? If corporate citizenship focuses on all groups besides shareholders, why bother?
To understand the answer, you need to think long-term. And before anything else, you should remember that corporate citizenship is what many modern shareholders want to see as part of a rounded and thought-out strategy.
Ultimately, corporate citizenship builds a company’s reputation, fosters loyalty among customers and employees, and can lead to increased attention from investors and less pressure from regulators.
The role of board members
Board members are pivotal in embedding corporate citizenship into a company’s ethos. As the ultimate authority in strategic decisions, they have the power to ensure that a company’s actions exemplify its beliefs.
If your company chooses to pursue good corporate citizenship, it’s up to the board to make decisions demonstrating that while maintaining financial success at all times.
This means ensuring topics relevant to corporate citizenship are on the agenda at board meetings, applying appropriate metrics, and employing the correct reporting and communication strategies, all while being able to show that the company remains fiscally healthy.
The board is the source of the standards a company will follow and which outside stakeholders will judge it on. It’s a crucial role.
In summary
Corporate citizenship is integral to most modern businesses because of the weight of stakeholder expectations.
Done right, it reflects a company’s commitment to ethical operation and social responsibility. Board members play a critical role in this, ensuring corporate strategies drive profitability and contribute positively to societal well-being.