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Organizations now recognize their societal responsibility, making it crucial to assess their community impact.
"Social impact" refers to the positive or negative effects of an organization's actions on individuals and communities, covering areas like social equity, community development, ethical labor, human rights, health, education, and climate. This concept includes impacts from core business activities and initiatives that prioritize human well-being.
The business-society relationship is increasingly complex as firms tackle economic, environmental, and social challenges. Global economic growth has slowed, reaching only 3.2% in 2024, and this situation is expected to continue in 2025.
This trend is expected to persist, potentially worsening inequality and instability. Stakeholders increasingly value companies with strong social responsibility.
Consumers and employees seek value-aligned organizations. Also, Millennials and Generation Z are looking for work environments that align with their values, while many governments, authorities, and regulatory bodies are emphasizing ESG compliance.
Consequently, companies focus on positive social impact, recognizing its link to their success. Studies show that prioritizing social goals alongside profits improves performance. This connection is evident in company experiences.
Therefore, prioritising social impact offers benefits like enhanced reputation, increased client loyalty, talent attraction and retention, and new market opportunities.
The Role of the Board of Directors
Social impact is vital for organizational flexibility, reputation, trust, and strategic interests, making it a core board responsibility for long-term success.
The board oversees, discusses with management, and sets impact-conscious strategies and goals. Board members create the necessary conditions for integrating social impact, and their personal commitment reinforces this culture.
The board chair plays a central role in guiding, planning, and acting as the organization's conscience, driving social impact goals.
Here are 5 steps to integrate social impact into corporate culture
1. Consider the Stakeholders’ Perspectives
The board must ensure executive leadership understands and addresses diverse stakeholder needs, even when conflicting. The board's approach guides leadership and requires collaboration with key stakeholders to ensure social impact goals reflect their views and that operations yield positive community and environmental outcomes.
Former DSM CEO Feike Sijbesma emphasized stakeholder involvement in decision-making to understand social impact risks and opportunities for mutual benefit.
The board chair is responsible for establishing a mechanism to map stakeholders and analyze feedback from relevant groups (shareholders, employees, clients, suppliers, regulators, experts, and communities).
These insights should inform executive strategy and board decisions for sustained success and organizational resilience.
2. Integrate Social Impact into the Organization's Business Strategy
To be truly effective, social impact should be a core part of business strategy, not a separate initiative. This requires ceasing to consider it a secondary activity and recognizing its importance to the company's success.
Mike Canning, Head of Innovation and Public Policy, highlighted that integrating social impact transforms theoretical goals into valuable actions for both the company and society, improving reputation, differentiation, and long-term success.
Each organization has a unique social impact influenced by its sector, resources, and business model. Therefore, a company's strategy should connect core operations with social impact goals, ensuring daily activities contribute to positive outcomes.
Boards should encourage management to integrate social impact into strategic decision-making and assist in setting relevant goals aligned with the organization's values.
The process's effectiveness can be enhanced by guiding executive management in establishing social impact goals that align with the organization's mission and values.
Executive managers should identify areas for enhancing social impact and launching initiatives to differentiate the company from competitors. Examples include:
- Evaluating Social Impact: Assessing current operations' effects on local communities and developing improvement plans.
- Diversity, Equity, and Inclusion (DEI): Increasing representation of marginalized groups in leadership roles.
- Community Development: Investing in local initiatives that create jobs, improve skills, and empower education.
- Ethical Supplier Relations: Partnering with suppliers committed to fair labor practices, environmental standards, and human rights.
- Product Innovation: Offering products or services that address social issues or reach underserved communities, such as by offering products at affordable prices, expanding the supply network, and using advanced technology.
- Partnerships: Collaborating with companies, non-profit organizations, government agencies, and social innovators to enhance social impact.
Consequently, boards must advocate for incorporating social impact into core strategies, ensuring alignment with ongoing operations.
3. Manage Organizational Risks Related to Social Impact
The board is tasked with managing both organizational and strategic risks, particularly those arising from social factors.
These risks arise from changes in social expectations, cultural developments, or failure to adhere to ethical standards. Also, they negatively affect the organization's reputation, ongoing operations, level of performance, and long-term success if neglected.
Poor labor practices include low levels of diversity and inclusion, human rights violations, suppliers' non-compliance with ethical standards, environmental and climate impacts, protests, and movements, for example. These risks can escalate very quickly in today's hyper-connected world.
Boards must rigorously address material social issues and their associated risks and opportunities. Key activities may include:
- Reviewing administrative procedures to identify and assess social risks.
- Testing risk mitigation strategies imposed by executive management.
- Receiving regular reports from management on risks and strategies for dealing with them.
- Discussing emerging and escalating risk factors.
Incorporating these elements into the board's agenda is essential for effective risk management and organizational resilience.
4. Review the Board's Structure and Agenda
Organizations can struggle with urgent issues due to time constraints and complex board agendas.
The board must prioritize these matters and ensure committees and support systems are in place for detailed discussions within skilled teams or subcommittees.
Evaluating governance arrangements and structure helps understand how the organization manages social impact strategies and resilience. The board might consider integrating social impact into committee responsibilities to ensure sufficient attention.
It should also verify members' understanding of stakeholders, integration of social impact into strategy, and commitment to goals. Educational programs can empower board members to ask pertinent questions, challenge management, and provide support.
5. Evaluate Impact and Enforce Management Accountability
Assessing social impact is crucial for monitoring progress, but establishing well-considered, reliable, and accurate metrics is challenging.
Consequently, team members must understand how to select, use, and calculate appropriate metrics to evaluate progress effectively.
Disclosing successes and challenges in social impact initiatives builds stakeholder trust, demonstrates the board's commitment, and sets a positive example.
Accountability enhances social impact outcomes. The business strategy should outline management responsibilities for implementing social impact initiatives and achieving results. The board's objectives should include:
- Considering linking executive compensation to social impact metrics.
- Defining measurable outcomes aligned with organizational goals.
- Regularly reviewing performance against these goals.
- Ensuring transparent reporting.
In Conclusion
The board of directors plays a vital role in overseeing operations, enabling success, and maintaining organizational resilience.
Measures to enhance reputation, credibility, and market standing are essential. Increasing stakeholder demands require the board to actively address social impact and integrate it into the overall strategy and agenda.
Boards contribute to company success and social impact by overseeing executive leadership.
