The Challenges of Total Societal Impact and How CEOs Can Operationalize It

This past August, the Business Roundtable issued an open letter on the Statement of Purpose of a Corporation that upended 25 years of corporate conventional wisdom. In the letter, BCG’s North American CEO and 180 other influential CEOs essentially said that corporations are accountable to customers, employees, suppliers and communities alongside shareholders.

The contents of the Statement of Purpose align quite well with Total Societal Impact (TSI), a strategic lens that my colleagues and I first introduced in 2017 and have extensively spoken and written about since. TSI aggregates a company’s positive and negative economic, social, and environmental effects on the world through its products, services, operations, core capabilities, and activities. It leverages an organization’s core business for scalable and sustainable efforts that, among other benefits, reduce the risk of negative events, open up new opportunities, and secure a greater license to operate.

Examples of TSI in action include consumer packaged goods companies like PepsiCo, Nestle and Unilever making their plastic packaging more environmentally friendly, or payments companies like Visa working with micromerchants worldwide on financial empowerment. In fact, we see companies coming together across industries and verticals to advance important societal aspirations with business-oriented efforts. For instance, we supported a CEO initiative led by UNSGSA Queen Maxima across consumer, telecom, banking, insurance and payments companies to advance financial inclusion.

Working with private sector companies, I see firsthand how companies can gain business and societal value through their core operations. Since BCG first began discussing TSI in 2017, the concepts behind it have become increasingly important to business leaders as the Business Roundtable’s open letter attests.

TSI: A New Lens for Strategy

TSI centers on the total societal benefit from a company’s products, services, operations, core capabilities, and activities. Organizations embracing a TSI-centric approach integrate environmental, social and governance (ESG) factors as a crucial part of day-to-day operations alongside maximizing shareholder value. This lens means that additional stakeholders in the continued growth and wellbeing of businesses are considered alongside shareholders.

As the Harvard Business Review notes, CEOs responsible for nearly 30% of total U.S. market capitalization are openly promoting an approach similar to the European and postwar American idea of “stakeholder capitalism.”

Research indicates that executives increasingly believe in their businesses having strong societal impact. According to a 2019 YPO survey, 93% of CEO respondents say that business should have a positive impact on society beyond pursuing profits and wealth. Three-quarters of that group also note their perspective on this priority and their own role in advancing it has changed over the past five years. Our own research, meanwhile, indicates that integrating TSI into an organization benefits total shareholder returns over the long term by improving margins and valuation multiples.

In my experience, the biggest problem facing leaders isn’t necessarily believing that societal impact is important but rather figuring out how to operationalize societal impact within their core businesses.

Operationalizing TSI

One of the biggest challenges CEOs face is operationalizing TSI. Once it’s understood that executives and their organizations have multiple stakeholders—not just shareholders—they need to evaluate which areas in their industry provide the best opportunities to create both societal benefits and financial returns.

This process requires, first off, transferring global ambitions into local contexts. Multi-national corporations tend to have complex, globally-diffused structures with deeply embedded incentives, organizational culture and ways of working across groups. Embedding a new lens for strategy in that context and translating it throughout the organization is a meaningful, impactful and increasingly necessary change.

Operationalizing TSI also requires finding new ways to collaborate. Many of the hurdles organizations face in tackling issues in their supply chain or unlocking new opportunities at the bottom of the pyramid require collaboration with competitors or even on an industry-wide basis. These require new muscles that organizations must develop in order to achieve success.

BCG has previously researched the link between individual ESG topics and financials in consumer packaged goods, biopharmaceuticals, oil and gas, retail and business banking, and technology and found that TSI offers valuable tools for linking acting towards the greater good with increased financial returns.

Lastly, organizations need to build the case for action towards TSI. Measuring and articulating business value from TSI-related can be challenging, but they are crucially important tasks. While implementing TSI may be intuitive and our work has shown there is positive impact on corporation value from TSI, building robust business cases for action and sharing them with stakeholders is important and difficult work.

As we embark on the journey towards TSI with organizations tackling these global challenges, we find that those who are committed to the journey are building more valuable and more resilient businesses.

The Business Roundtable’s announcement made headlines and showed that America’s corporate leaders are serious about making a difference; TSI gives them the lens they need to put institutional and organizational changes into action.