IBM

Monday 13 April 2009

Today’s competitive business landscape is always changing, and it is changing more rapidly than ever. Historically, companies search for a way to either cut costs—become low-cost leaders—or differentiate their product—become differentiators. But consumers now look at more than just the product displayed in the window, whether that window is a glass storefront or an electronic one at their fingertips. As a result, to secure a competitive advantage in the 21st century, firms are forced to go a step further. That next step is Corporate Social Responsibility (CSR).
The Harvard University Kennedy School of Government defines CSR as a practice that goes beyond a company’s profits, to “how they make them. It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm.” This definition is particularly poignant because many companies simply give money to charities or plant trees help the environment, while very few actually can be considered “socially responsible.” One of those select few is International Business Machines Corporation (IBM).

IBM can consistently be found atop rankings for socially responsible companies. The New York-based company is lauded for its commitment to measuring various aspects of its socially responsible business practices. In addition to the government-mandated Annual Report with financial data and other company information, IBM recently has chosen to publish a separate report focusing only on its corporate responsibility. This 98-page report includes graphs, photos, diagrams, and descriptions of IBM’s socially responsible actions.

The report is divided into five sections, but IBM’s socially responsible behaviors can really be grouped into three larger categories—responsibility within the IBM corporation, responsibility outside IBM at a human or “micro” level, and finally responsibility outside the firm on a “macro” level. Within the company, IBM fosters a welcoming, educational, and active environment for its employees. At this “micro” level, IBM is partnering with universities to discover new treatments for HIV, ways to protect the watershed, and develop more nutritious and pest-resistant rice. All of these practices directly affect people across the world. The “macro” level has three main focuses: the supply chain, the environment, and corporate governance; IBM has specific socially responsible practices in each of these three areas. Before delving into the details of why IBM is ahead of its peers in CSR practices, though, it is critical to understand the basis of the whole CSR phenomenon.

The idea of Corporate Social Responsibility first entered the business lexicon in the 1970s when a few firms ran advertisements and included CSR sections in their annual reports that mentioned the environment, but did not relate to the company’s financial performance. Abt & Associates was perhaps the first company to include an environmental impact report in its financial statements, but was no standard against which to measure their reported numbers. A new wave of CSR reporting arrived in the late 1980s, when ice cream company Ben & Jerry’s collaborated with a “social auditor” on a 1988 report. This “stakeholder report,” as it became called, was perhaps the first of its kind, covering topics such as the community, employees, customers, suppliers and investors. The third phase of CSR evolved in the 1990s, as reporting standards and accredited social auditors became prevalent. The Global Reporting Initiative (GRI) is now the leader in benchmarking sustainability, and consulting firms such as Towers Perrin offer strategy to make business more sustainable environmentally, ethically and socially. IBM follows the GRI G3 Sustainability Reporting Guidelines, and even earned a GRI Level A rating based on the 2007-2008 report.

IBM does an excellent job of solidifying a base for social responsibility by starting its efforts at the employee level. The company focuses on four specific areas for their employees, called “IBMers.” IBMers are encouraged to develop their careers, continue learning, and actively participate in their communities. The corporation is also a strong supporter of diversity in the workplace. One of IBM’s goals is to increase the human capital of their workforce, by offering development programs in a variety of areas, including Management and Leadership, Sales, and Technology and Products; the cost of these learning initiatives totaled $622 million in 2007, and the company has in the past invested over $700 million in a year. But what is impressive is not just the amount of money the IBM is throwing at this broad idea of “development,” but the actual results of the investment. Across the entire corporation, IBMers spent 22.3 million hours learning new skills and techniques in 2007 alone, and the “learning hours per employee” jumped from 55 to 58 from 2006 to 2007.

The development of employees extends beyond a classroom or conference room, however. The firm’s Corporate Service Corps brings IBM employees to emerging and underdeveloped countries such as Romania, Ghana, and Vietnam to “work on projects in which information technology is used to foster economic development.” These projects help the people in the 3rd-world countries learn and grow, and they also help IBMers operate as global citizens as they are confronted with new challenges and situations. These learning experiences are also a great way for employees to give back to the growing and interconnected global community. IBM’s “corporate version of the Peace Corps” helped small businesses from Ghana—craftsmen to engineers—redefine business models and implement new technology. In the United States, IBMers have been equally as charitable: 58% of employees participate in charitable giving, donating $35.1 million to over 14,000 different organizations in 2007.

IBM stresses diversity in the workplace because in order to understand the global markets they serve, it is necessary to have an “employee population that mirrors” those markets. As a result, IBM offers specific diversity recruitment events and job opportunities geared specifically towards women and minorities. The number of women executives within the firm has risen to 20.3% in 2007, up from 17.1% in 2003.

These three areas—diversity, giving back to the community, and developing human capital—are all important, and many companies today follow similar practices. IBM really differentiates itself, though, by putting an extra emphasis on the health and well-being of its workforce. IBM invests in primary care and development programs for living a healthy lifestyle. Some examples of their outstanding work with regards to employee health include: vaccination programs in Asia, low-cost fitness club memberships in Germany, and weight-loss and smoking cessation programs in Europe and Africa. No other company I could find in my research does nearly as much for its employees’ health than IBM.

Outside the corporation, IBM works on a “micro” level to help people across the globe solve important problems. While most companies’ main act of social responsibility is an effort to “go green,” IBM stands out in that does more to help the world. IBM currently funds projects for HIV vaccines, nutritious rice analysis and development, and watershed management. Whereas the main beneficiary of “going green” is the environment, these three aforementioned IBM projects target people themselves. The new vaccines will be used to help patients with drug-resistant strains of HIV; the rice project analyzes the proteins of rice to “better understand how to breed more nutritious and disease- and pest-resistant strains in the future,” since rice is the primary source of nourishment for 50% of the global population; the watershed management project aims to find new ways to collect clean water for human consumption, and manage other water sources for agriculture and wildlife.

This focus on society itself extends beyond research and development opportunities, however. IBM holds technology camps to introduce science, technology, engineering and mathematics to children across the globe. The number of worldwide camps has grown from 25 in 2002 to 75 in 2007. IBM also sponsors other learning activities for kids to teach them about helping the planet using critical thinking and problem solving skills. In addition, IBM has a number of initiatives in place for minorities, women and university students to develop their skills in mathematics and technology, equipping them for success in a global and technology-driven marketplace. IBM has donated about $90 million total—in cash, technology and human capital—to educational efforts, with the remainder of the money going towards health, human services, culture, and the environment.

The hundreds of millions of dollars donated and used by IBM to better the world is only a drop in the bucket relative to the $98.8 billion in revenue for 2007, and some critics attack IBM on that fact. According to the organization Corporate Watch, “corporate philanthropy” only occurs if a company sees potential profit in it, usually because they want to improve their image, “exploit a cheap vehicle for advertising,” or to “counter the claims of pressure
groups.” Basically, Corporate Watch argues that a company might in fact donate more money, but it donates less in reality because it hopes to offset that cost by benefitting financially in the future. It is important, though, to keep in mind that Corporate Watch especially attacks corporations that make products that are intrinsically harmful—cigarettes, oil, weapons. IBM does not participate in those activities. And as for Corporate Watch’s criteria for a socially responsible company—address climate change, do not sell harmful products, do not manipulate the public, and reduce consumption—IBM fulfills all of them with its comprehensive CSR policy.

Outside the corporation on the “macro” level is where IBM rounds out its social responsibility policies and practices, with a strong focus on the environment as well as the supply chain. In fact, the longest section of IBM’s Corporate Responsibility Report is the section about the environment. Many companies set goals to reduce consumption and emissions, but IBM has actually reached those goals and surpassed them. In 2007 alone, IBM reduced emission of greenhouse gases (GHG) by 3.8% from 2006; their goal was 3.5%. This reduction avoided the consumption of 178 million kWh of electricity and 2.7 million gallons of fuel, in total equivalent to 111,000 metric tons of CO2 emissions, as well as $19.3 million in energy expenses. Even a company as big as IBM—a company that is constantly expanding its product line and production locations—was able to make reductions, in addition to establish policies and practices to make the company even more sustainable. IBM now purchases 8.5% of its power (455,000 MWh) from renewable sources. The flexible work programs allow employees to either permanently or occasionally work from home, to save gas and prevent CO2 emissions on the commute to work. IBM took this idea a step further, with the development of e-meetings and videoconferencing to cut back on the expense and GHG emissions of business travel. On average in 2007, there were 1000 web conferences each day, with 5000 daily participants, including employees and clients alike.

Energy consumption and savings is not the only facet of sustainability, however. Recycling and waste management are also key components, and IBM’s “product stewardship program” focuses on manufacturing energy-efficient products with recycled materials, that can be recycled themselves at the end of their usable life. The company again surpassed a goal, incorporating recycled plastics into 10.6% of its products; the goal was 5%. New products under this program now can give as much as 73% more power with the same energy input. In addition, IBM prohibits the use of specific chemicals and compounds—such as polybrominated biphenyls, cadmium inks, and tetrabromobisphenol—that have proven to be detrimental to the environment. At the end of the product lifecycle, IBM has a recycling program to protect valuable data and reuse hardware materials. Only 0.3% of products are put in a landfill, and 0.5% incinerated; this unprecedented remainder of products is reused, recycled and refurbished. IBM’s Corporate Internal Audit staff conducts numerous audits every year of its manufacturing and research sites, and an independent audit service visits the same sites every year as well. IBM also voluntarily partners with many organizations and initiatives supporting sustainability, such as Energy Star, Chicago Climate Exchange, Pew Center on Global Climate Change, and the World Business Council for Sustainable Development.

IBM’s excellence in sustainability even trickles down to its diverse group of suppliers. The corporation evaluates its suppliers—companies dealing with everything from factors of production to hazardous waste to product recycling and disposal—and even subcontractors of those suppliers to make sure they abide by ISO 14001 environmental management standards. This entirely separate program, called the Supply Chain Social Responsibility program, includes conduct clauses in every written contract, as well as independent audits to make sure those companies follow through on their promises. Though the results of the audits demonstrate that suppliers in emerging markets are not always complying with IBM’s regulations overall, very few of the infractions fall into the categories of record keeping, environmental, child labor, forced labor, or ethical dealings. When a company does not follow IBM’s code of conduct, it must identify the cause of the problem, and then work with IBM to develop a solution to that problem in order to fully comply with the rules.

It is clear that IBM is an excellent company when it comes to Corporate Social Responsibility. Organizations such as Transnationale attempt to point out flaws regarding “offshoring,” but in reality most companies, institutions, and high-net worth individuals have offshore accounts as a way to protect assets. The online group CorpWatch notes a lawsuit against IBM for toxic waste dumping causing birth defects, but that claim is difficult—if not impossible—to pinpoint scientifically. So how does IBM do it? What is their model for success? IBM focuses first on its employees, making sure they develop as human beings by participating in training sessions and community outreach programs. Then, IBM helps solve some of the world’s most important problems that directly relate to humans—HIV, the rice shortage, and the growing demand for fresh water. And finally, IBM tackles other global issues, such as sustainability, climate change, and ethical business. Decisionmaking at IBM comes only after a lot of discussion and interaction between various levels of employees and stakeholders, all of whom contribute information from many points of view. The corporate behaviors and programs speak for themselves, but the numbers make it clear: IBM is a leader in Corporate Social Responsibility.

“From IBM’s inception, nearly a century ago, our company has always been in the business of engaging with forward-thinkers across business, science and society to make the world work better. IBMers have always believed that when people think about how the world should work, they are inevitably driven to challenge the status quo, and to change it. And the resulting benefits flow not just to them and their organizations, but to their communities and global society.” – Samuel J. Palmisano, Chairman, President and CEO

Bibliography

Corporate Responsibility Report. Publication. Armonik, New York: International Business Machines Corp., 2008.
Defining Corporate Social Responsibility. 2008. Harvard University Kennedy School of Government. 25 Jan. 2009 <http://www.hks.harvard.edu/m-rcbg/C...> .
Tepper Marlin, John, and Alice Tepper Marlin. A Brief History of Social Reporting. 9 Mar. 2003. Business Respect. 25 Jan. 2009 <http://www.mallenbaker.net/csr/CSRf...> .
"The Arguments Against CSR." Corporate Watch. 7 Feb. 2009 <http://www.corporatewatch.org.uk/?l...> .
Wilchins, Dan, and Philipp Gollner. "US: Suit says IBM dumped chemicals in New York state." CorpWatch. 3 Jan. 2008. Reuters. 7 Feb. 2009 <http://www.corpwatch.org/article.ph...> .

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