“The Chief External Officer is in place to interact with external stakeholders and to deal with critical environmental shifts the firm is dealing with,” Dr Sotirios Paroutis, assistant dean at the Warwick Business School, and one of the research authors, tells CIO New Zealand.
“In particular industries, such as IT and social media, responding to issues such as disruptive technologies and cybersecurity is a critical aspect of their role, in collaboration with other C-level executives, such as chief information officers,” says Paroutis.
Paroutis and Jonathan Doh, of Villanova University, Thomas Lawton, of Open University Business School and Tazeeb Rajwani, of Cranfield School of Management are authors of the research Why your company may need a chief external officer.
The research, published in Organizational Dynamics, points out most firms have an established legislative or regulatory affairs function to interact with the various branches of government at national and local levels. Then there a separate office to deal with community relations, philanthropic donations, and increasingly, issues of social responsibility and sustainability, including interactions with non-profit nongovernmental organisations (NGOs).
“A more balanced approach is needed,” they authors argue.
In particular industries, such as IT and social media, responding to issues such as disruptive technologies and cybersecurity is a critical aspect of their role, in collaboration with other C-level executives, such as chief information officers.
“Emerging issues such as climate change, financial regulation and disclosure, cybercrime and terrorism, and the labour and human rights of workers in developing countries, all require proactive non-market strategies directed toward both political and social actors,” notes Paroutis.
“Yet, most companies maintain distinct and separate offices for these functions, potentially leading to uncoordinated and at times conflicting objectives and outcomes.”
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Paroutis says the research authors believe most companies under-appreciate the challenges emanating from the non-market arena and therefore relegate their external affairs function to a lower status than it should be accorded.
“A realistic stance for most companies is a balanced approach to corporate strategy, political activity and social responsibility, which emphasises alignment across these priorities and the functions that are responsible for them,” he says.
“Our study shows that by increasing the stature and influence of the external affairs function, firms can achieve more effective strategic actions and policies, ultimately serving to increase their competitive advantage.”
But what if having a separate CEO is not on the table, for example, due to financial reasons. Can firms consider embedding the role within their current C- suite or their executive teams?
“This really depends on the mix of your C suite, and the nature of your business,” Paroutis explains.
“For utilities and energy firms, these tasks could be taken up by the Chief Sustainability Officer; for banks and insurance firms, the Chief Legal Officer can handle parts of the role; for retail and services firms, the Chief Marketing Officer would be more relevant; whereas in IT and social media firms, the Chief Information or Media Officer would be an option.
“For SMEs and smaller firms, marketing executives could deal with aspects of the Chief External Officer role. If your firm already has a Chief Strategy Officer, then they could take on board some responsibilities of the External officer. However, a separate Chief External Officer position is needed, when firms are seeking to gain the full benefits from the social and political arenas.”
Paroutis stresses there is no one-size fits all option for firms looking to adapt a new strategy using a Chief External Officer.
“The degree to which companies should emphasise political concerns versus social issues - or both - is contingent upon their particular industry, strategies, and product mix,” he says.
“In the end, the non-market environment should not be viewed as separate from the other arenas in which firms compete. Only then can firms successfully respond to and proactively influence the politicians, campaigning groups and organisations that facilitate - or impede - their competitive success.”
Vaughan Robertson, group manager - technology strategy at Beca recalls a similar discussion years on who should be in charge of innovation.
“Should it be the CMO, the CIO, the COO or the CEO? The answer is all of the above,” he states.
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“In New Zealand, we do not have the size and diversity to be able to simply put in another executive role in to cover up that piece,” says Robertson, on the call for companies to appoint a Chief External Officer.
“We need the C-suite officers to collaborate and recognise the issues and work together to solve them.”
Lufthansa and Tata Consultancy Services: Getting a headstart
Paroutis says the research interviewed executives from a range of companies and found that some of them, for example Lufthansa and Tata Consultancy Services (TCS), had developed distinctive and C-level executive roles that engage both political and social contexts in an integrated fashion.
“In the mid-1990s Thomas Kropp managed Lufthansa’s government and regulatory affairs office in Brussels. Like other major airlines at the time, Lufthansa was under growing pressure to increase fuel efficiency, reduce emissions, and adopt an overall social responsibility and sustainability strategy.
"Kropp was able to keep his company ahead of the game and meet these challenges head on, even sitting on the Association of European Airlines as Chairman a number of times.
"In contrast, other national flag carriers including Alitalia and Iberia failed to recognise or respond rapidly to the new environmental realities.”
Another example of a successful external affairs position was that of Malcolm Lane, says Paroutis. Between 2001 and 2013, Lane managed the European external affairs office of TCS, which included promoting TCS’ green agenda while exchanging vital position papers with politicians and legislative bodies.
Says Paroutis: “In an interview, Lane explained to us that TCS created this role as a deliberate part of its strategy to respond to social and environmental pressures, and to be proactive as these interests grew.
The BP oil spill disaster is an example where the CEO, who was quoted as saying ‘the environmental impact of this disaster is likely to have been very, very modest’, could have benefited from the targeted advice and experience of a Chief External Officer.
Paroutis notes, however, that Lufthansa and TCS are unusual examples.
"In most large companies, the development of nonmarket practices is not left to a dedicated individual or function, but instead occurs under the aegis of a broader legal, external affairs or even public relations function. But recent incidents highlight the potential problems of this.
“The BP oil spill disaster is an example where the CEO, who was quoted as saying ‘the environmental impact of this disaster is likely to have been very, very modest’, could have benefited from the targeted advice and experience of a chief external officer.
“Similarly, situations such as the recent tragic fires in Bangladesh and India brought companies such as Gap, H&M and Wal-Mart to centre stage over poor working conditions. These firms were caught flat-footed in their inability to provide coherent responses to criticisms, emanating from a range of governmental and civil society stakeholders, and would have benefitted from such a role.
“In the Lufthansa and Tata cases, this role was elevated to an appropriate level so that the importance of political and social issues commanded sufficient managerial attention and subsequent actions at a strategic level.”
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