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TORONTO, March 6, 2002 -- Executives who want to make their organizations better corporate citizens face many obstacles: If they undertake only costly initiatives that their rivals don't embrace, they risk eroding their company's competitive positions. And if they invite government review, they may be hampered by costly regulations. Such dilemmas call for clear, hard thinking. To aid in that undertaking, Roger Martin, Dean and Professor of Strategy at the University of Toronto's Rotman School of Management, introduces the virtue matrix in the March 2002 issue of Harvard Business Review. The matrix is a tool to help executives analyze corporate responsibility by viewing it as a product or a service.

Corporations don't operate in a universe composed solely of shareholders. The goal of maximizing shareholder value can be subject to pressure from citizens, employees, and political authorities. Prof. Martin points out that social responsibility and shareholder value are not necessarily incompatible. Corporations, such as The Body Shop, often willingly engage in socially responsible behavior precisely because it enhances shareholder value. Another class of responsible corporate conduct generates shareholder value by keeping a company free from legal sanction and by safeguarding its reputation.

Most business leaders, says Prof. Martin, sincerely wish to conduct themselves with a minimum degree of social responsibility, if not exceed it. The matrix offers a framework for evaluating the claims of shareholders, society and government, and encourages business leaders to be as bold and innovative in enriching society as they are in enriching their shareholders.

The virtue matrix depicts the forces that generate corporate social responsibility. At the bottom lies the civil foundation, which consists of the norms, customs, and laws that govern corporate practice. Companies engage in these practices either by choice or are mandated by law or regulation to comply. Corporate innovations in socially responsible behavior occur in the frontier (or upper quadrants) of the matrix. At first the motivation for these practices tends to be intrinsic: Corporate managers engage in such conduct for its own sake, rather to enhance shareholder value. Behavior that adds to both shareholder value and is social responsible falls into the strategic frontier. The structural frontier houses actions that benefit society but not shareholders.

Behavior in both frontiers can migrate to the civil foundation, from the strategic frontier through widespread imitation of the successful innovator, such as Prudential Insurance's introduction in 1990, of viatical settlements to people with AIDS, or from the structural frontier through collective action or government mandate. These migrations ratchet up the civil foundation but the foundation can be ratcheted down if a critical mass of companies abandons a socially responsible practice, cautions Prof. Martin.

The matrix also points out that you can't treat all issues the same. It depends on whether they lie in the strategic or structural frontier. In the strategic frontier, corporations that undertake bold initiatives require support from consumers and employers for their initiatives to migrate to the civil foundation. Scandinavian paper producers took a chance on innovations such as using unbleached pulp in their products and, subsequently, were supported by local consumers who welcomed the environmentally friendly approach.

On the structural side, issues require collective action from corporate leaders and/or government and non-governmental organizations. For example, if only one chemical manufacturer spent to reduce greenhouse gas emissions, it would probably lose sales due to higher costs and raised prices and there would be no social benefits. However if manufacturers joined together to raise standards, the social benefit could be achieved. Failing that, government regulation would be required to achieve the targeted benefit.