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State Farm Social Responsibility Essay

Introduction

As businesses worldwide continue to transition from production focuses to service mentalities, so has the zeitgeist of business operation. Profit-maximization goals are no longer predicated solely on selling more products or services; these goals are now also predicated on social responsibility, also called social awareness. In order to maintain its reputation as the premier insurance and financial institution in the country, State Farm can no longer hold an agnostic position about social responsibility. Concerted efforts must be made to create a synergy between the corporate culture and the culture of its consumer base.

This report will provide treatment, inclusive of recommendations, to four social-responsibility abstractions: environmental, ethical-leadership, sustainability, and legal considerations. The ideal result will be to prove a correlation between corporate social responsibility and corporate profit-maximization goals. This substantiated correlation should, then, prove that corporate flourishing cannot be possible with an interest in human flourishing.

Social-Responsibility Definition and Motivations

Before undertaking a deep discussion on this subject, it will be helpful to offer a definition of “social responsibility,” which is “the obligation corporations, organizations, and individuals have to society” (Stengel, 2010).

The principal impetus for a focus on social responsibility is found within post-Baby Boomer generations, namely so-called Millennials, which comprise individuals in their 20s and 30s. According USA TODAY, this is a generation that is socially connected and, as a result, informed about what transpires in the world. As is the case with Alex Wells of Washington, this is a group that will excoriate a company for its inattention to social issues, especially with issues that of which the company may be culpable. This is a group of individuals who will refuse to work under the purview of companies it deems as malfeasant toward human dignity (Jayson, 2006).

An argument can be made that companies cannot be expected to meet every need of every customer with a complaint. However, this argument is superfluous when juxtaposed with both the physical and financial size of Millennials. It is estimated that Millennials comprise more than 80 million individuals—with more than $200 billion worth of buying power (THE REAL DEAL, 2011). This is one of the largest and most financial potent generations in United States history. The reality is simple: Any company that chooses to ignore the mandates of the Millennials does so at its own peril and will never achieve the competitive advantage needed to maximize profits.

Environmental Considerations

All companies influence the physical environment in which they operate. These companies may be virtual or brick and mortar. They may be freelance operations or multi-domestic corporations. They may offer physical products or virtual services. Regardless, each of these companies creates a concerted impact on the environment in which it operates. This impact may be synergistic or antagonistic.

State Farm is no different. The company’s operations include insurance offerings, mutual-fund/investing solutions, and banking products for businesses and consumers (State Farm, 2013). All these lines of business offer nontangible services, but these services can be delivered virtually, such as purchasing insurance through the company’s Web site, or through a physical medium, such as a customer’s visiting a brick-and-mortar location to speak with a sales agent to make mutual-fund investment decisions. These activities influence the physical environment. For example, offering service through the Web site indicates that the data that comprise the Web site or that secures customers’ private information is often housed in an offsite physical location for data-redundancy purposes. And, of course, offering services through a brick-and-mortar location requires that the location be constructed in a particular setting and using specific raw materials.

State Farm has recently chosen to expand its presence online, principally in response to survey results indicating that competitors, such as Progressive Insurance and GEICO, are viewed as more technologically aware and, thus, more connected with contemporary customers whose normative experience is a ready access to data at any moment. The discussion focus of State Farm’s environmental awareness will, therefore, focus on those efforts to improve its technological image with customers.

One of the ways the company has chosen to improve its image is through the expansion of the functionality of its Web site, http://www.statefarm.com. Previously, the Web site was simply a portal to provide rudimentary information and was only interested in directing specific product or service queries to one of several State Farm’s contact centers or to brick-and-mortar sales agents throughout the nation.

A recent function expansion of the Web site is the ability for the company’s insurance customers to file automobile-accident claims online. (In the past, this process was handled through paper claim submissions or through reporting through a local sales agent.) On the surface, this expanded functionality is simple:

1. Hire Web designers/programmers;
2. Develop the new claims Web page;
3. Populate the page with fields to capture customer data; and
4. Channel data to claims professionals for further processing. However, with the capturing of customer data online, State Farm is responsible for maintaining the integrity of that data and securing it against unauthorized access to it. The company has established a process to maintain the data’s integrity. Now the company has chosen to make the data redundant by storing it in an offsite premise in the case of onsite unexpected data loss. This site does not currently exist; therefore, it must be constructed.

Environmental Recommendations

In choosing to construct this site, State Farm must remain faithful to social responsibility by choosing to construct in an environmentally sensitive fashion.

The principal concern for State Farm is the location of the facility. The company has the option of building the location either in the United States or in a different country. If it chooses to build in the United States, the location should be in an area that already has other buildings dedicated to data redundancy. The reason is that this area of development would have already been approved by the U.S. government to be compliant with environmental regulations, so the concern of government sanctions for construction in an environmental fashion would be mitigated. Furthermore, the technological infrastructure would be extant to reduce set-up costs.

If the company chooses to construct in a foreign country, it is recommended that the company construct in developed countries, such as in any number of countries in Europe. Construction in underdeveloped environments, such as in Africa, may initially seem feasible, since the company may not be subject to stringent environmental regulations, and the costs of construction may be lower, for example, due to access to cheap labor. However, constructing in the absence of these regulations and in relatively untapped locations may mean that construction may substantially alter the constitution or integrity of the existing ecology. The most notable example of wanton construction is the destruction of the Amazonian rainforest. This deforestation to support globalization has been linked with increased global warming (Wallace, 2012). Companies that contribute to global warming are not favorably viewed by Millennials, and this unfavorable view will result in lost revenue or even a backlash.

Based on this information, it is recommended that the company construct in the United States for the expressed purpose of falling within the purview of the environmental aims of the government and avoiding sanctions from international governing bodies.

Ethical-Leadership Considerations

As a condition of employment, each State Farm employee must abide by ethics set forth by the company. Leadership must especially be mindful of these ethics, as it is tasked with making decisions that affect the direction and possible viability of the company. Violations of the company’s ethics may lead to legal ramifications as well as public embarrassment, both of which will exact a serious toll.

An example of an ethical-leadership consideration are sales agents who own their locations and employ their own sales staff to sell insurance to customers who peruse their location. These sales agents/owners correspond with State Farm as franchisees. As such, even though they are subject to stringent guidelines for customer integrity and interaction, the sales of their office mainly support the viability of their business and provide the sole income for the sales agents/owners. The temptation of sales malfeasance by these sales agents/owners can be substantial, especially considering their locations are discrete from State Farm’s headquarters and contact centers.

For example, an owner may demand that her sales employees add unauthorized insurance riders to new customers’ policies, i.e., signing up a customer for full-coverage insurance when the customer explicitly requested liability coverage. Full-coverage insurance is decidedly more expensive than liability coverage, but sales agents/owners receive higher commissions from State Farm for such a sale. Although State Farm has rigorous audit processes in place to detect such an embarrassing human failure, these processes are not foolproof and, unfortunately, cannot be applied to the millions of sales transactions that happen in external environments.

Individuals are the locomotion of companies; leaders simply compel that locomotion. For a company to operate ethically, its organizational culture must be bound to an agreed-upon ethics by all employees. The intersection of ethical leadership and company locomotion is a human-resources matter. That is why ethical leadership is, really, a subset of human-resources management. Human resources is responsible for researching, cataloging, promoting, and enforcing the ethics of a company. This enforcement may also extend to business partnerships with other individuals or companies, such as franchisee sales agents/owners.

Ethical-Leadership Recommendations

To ensure an ethical culture, the human-resources department is recommended to implement an ethics program to be applied to leaders throughout the company and even to the leaders of external business relationships. There will be four rudiments of this ethics program:

1. Identify the company’s ethical framework; 2. Set explicit expectations on leadership and human management at State Farm; 3. Discuss auditing mechanisms to ensure that ethical leadership is adhered to; and 4. Discuss continuous-improvement mechanisms for this ethics program.

There are two rudiments to State Farm’s ethics program: integrity and accountability. “Integrity” is defined as “the quality of having strong moral principles” (integrity, 2011). “Accountability” is defined as the “[requirement] or [expectation] to justify actions or decisions” (accountability, 2011).

Integrity

Integrity is the mechanism through which everything about us flows: speech, actions—even thoughts. They all pass through the filter of integrity. Sometimes, leaders selectively choose to have them avoid that integrity filter, which introduces ethical and legal concerns.

State Farm invites all its employees to operate with an integrity filter on at all times. All speech, actions, and thoughts should pass through this filter to ensure authentic interactions between employees and leaders. This authentic approach also benefits interactions with customers.

Accountability

Accountability is the mechanism by which integrity evaluations are made about speech, actions, and thoughts. Each leader makes his or her our own integrity evaluations—i.e., holding oneself accountable—or others can be involved. Leaders should constantly look for self-justification in their actions to ensure that they operate according to company ethical principles. And for times of leadership incertitude, look to colleagues for accountability; external stimulus may spur on ethical leadership decisions.

The following is a visual representation of State Farm’s code of ethics:

Code of Conduct/Ethics|
INTEGRITY| | ACCOUNTABILITY|
* Did I bill the customer correctly? * Am I making unfounded assumptions about my boss? * Am I gossiping about the VP?| | * I billed according to company guidelines. * I have spoken with my boss about why he snaps at me sometimes. * I don’t repeat secret information about someone else.|

Ethics-Training Program

The code of conduct will be supported by a robust one-day, or eight-hour, training program that will consist of both interactive, e.g., classroom, and online training. The goal of this training is to drive home the importance of our leaders’ choosing to operate ethically and within legal boundaries. See below for the details of the training program.

State Farm Integrity and Beyond Training Program|
`Time Frame—7:45 a.m. to 5 p.m.|
Meeting Type| Activity| Activity Description|

Code of Conduct/Ethics—Audits and Resources

To offer support and resources to every leader under the guidelines of the company’s code of conduct/ethics program, it is suggested to implement a robust audit-and-feedback process to ensure that compliance with corporate and government mandates. There is a twofold goal for the audit-and-feedback process:

1. To celebrate strengths in demonstrating ethical and legal decision-making 2. To identify challenge areas and develop action plans to meet ethical standards and to support State Farm’s mission

Audit Program

The following are details on 1) the system used to manage the ethics-audit process, 2) who the go-to people are for all things ethics related, and 3) how the audit process will unroll for each employee.

Audit System

State Farm has developed a proprietary ethics-auditing system called Ethics Witness that sets out to accomplish a principal goal: Randomly monitor leadership interactions. State Farm has also created an ethics hotline for any ethics concerns observed by other employees, especially of leaders, who would like to make a report anonymously. The number to call is 1-800-ETHICS1. Any calls will be housed in Ethics Witness, which will send all calls to the Chief Ethics Officer daily for follow-up.

Audit Team

State Farm has assembled an ethics-audit team called the Ethics Champions. This team consists of eight people who will rotate from the position after three months of service, and it is tasked with scoring the ethics leadership observations recorded by Ethics Witness program. The scoring will be kept in system to be later reviewed and discussed with each leader and employee. This rotation serves a few purposes:

1. It provides a welcome change of pace from an employee’s standard job duties; 2. It gives all employees the opportunity to learn more about the importance of ethics at State Farm and be champions of them; and 3. It exposes all employees to all facets of the ethics process.

Audit Process

The audit process is straightforward and is based on one rubric: integrity. During the monitoring process,

* Did the leader demonstrate integrity in his or her interactions? * Did the leader set the appropriate expectations for his or her team? * For any corrective-action discussions between leaders and employees, were appropriate updates made to the employee’s files? * Did the leader follow up with his or her employee as committed? Each audit will be scored on an ethics-audit form. Here are some facts about the form:

1. There are 10 ethics-related rubrics offered on each form; 2. The value of each rubric is 10 points;
3. A “yes” equals 10 points; a “no” equals 0 points; 4. Points must be earned, that is, for each rubric that receives an affirmative answer, you gain 10 points, and 5. A successful score is 80 points or higher.

Each leader will receive eight monthly audits—two audits per week—for months with four weeks and 10 monthly audits—two per week—for months with five weeks. Each week, the leader will be scheduled an appointment to meet with an auditor to review the monitored interactions for that week. The discussion will focus on

* The leader’s ethical strength areas—offering support and encouragement for doing well * The leader’s challenge areas—offering feedback and support for creating an action plan to improve

If there are disagreements about the final audit score, the score will be escalated to the Chief Ethics Officer for settlement. Her decision will be considered final.

For leaders who demonstrate 12 months of audited ethical conduct, they will receive two additional vacation days to be added to their paid-time-off bank. They will also be recognized in our ethics newsletter called “Ethical Times at State Farm.”

The goal is to complete each month with the highest ethics-audit score possible, with a baseline score of 80 percent being the minimum standard of performance. If there are two consecutive months of not meeting the minimum standard for performance, the leader’s direct manager will create a performance-improvement plan, or PIP, to help to improve scores. After the implementation of the PIP, if there are underperforming audit scores for sx contiguous months, employment from the company will be terminated.

Ethics Program Process Improvement

Although we are confident that we have created a code of conduct/ethics policy that is sound and supports our company’s mission statement well, we recognize that no process is ever complete and will always be subject to improvement over time. That is why we created a process-improvement team for our ethics policy. The goal of this team is to

1. Generate reports from Ethics Witness on a monthly basis to look for trends, 2. Review Customer-Service-Satisfaction Surveys, or CSATs, to ascertain our customers’ feelings about how ethically our company operates, and 3. Periodically survey our employees to seek out suggestions for improving our ethics policy.

To demonstrate the importance State Farm places on this team, both our CEO and our Chief Ethics Officer are lay members of this group. We are truly invested in communicating transparency as well as improvement with this team.

Semi-annually, our process-improvement team will send a newsletter with ethics updates as well as upcoming changes to our ethics policy. They will also highlight the ethics superstars, that is, the employees who have demonstrated consistently high ethics-audit scores.

Sustainability Considerations

When referring to sustainability, it is meant that the company must make decisions based on the long-term effects on humanity. An example of placing sustainability (human flourishing) in a secondary status to profits would be the aforementioned destruction of the Amazonian rainforest. It is true that the lumber culled from this rainforest is useful worldwide in building up nations. However, this is a tenuous path, because this rainforest also mitigates against global warming by absorbing high levels of carbon dioxide from the atmosphere.

An abundance of carbon dioxide has been linked with global warming. Since carbon dioxide can be toxic to humans, the overall effects of exposure to abnormal amounts of carbon dioxide will prove detrimental to humanity. Is it, therefore, more important to provide humans with homes built from wood to shelter them now or choose a different, more sustainable method of home product that will not lead to eventual extinction of the species? This is not the course to human flourishing.

Another example includes mining for oil using high-polluting methods to make gasoline, which contributes substantially to smog. The detrimental effects of smog are visually demonstrable in cities such as Los Angeles and Shanghai, which reportedly have smog issues so considerable, the substance can be seen hovering over the cities ominously.

Sustainability considerations are possibly the most important social-responsibility considerations to make, because they directly contribute to human flourishing. Bluntly, a company cannot successfully market to a group of consumers who are negatively affected, for example, killed by cancer, by the very actions of the company offering the marketing.

Sustainability Recommendations

Even though State Farm offers mostly nontangible products, the company still has a role to play in sustainability efforts. It is recommended that the company institute a sustainability program to address several areas of concern. For example, the company uses a massive amount of paper for memoranda, business report such as the present one, and other large-scale communication documents. This usage requires the destruction of more trees. An appropriate response would be to institute a recycling program throughout the company. All unused or nonessential paper products should be placed in recycle bins. Furthermore, the company offers vending machines that dispense plastic soda bottles—which are non-biodegradable products. Offering recycling bins for these products also contributes to sustainability efforts. All recycling bins can be collected by the city in which State Farm operates and sent to recycling plants.

To further support the company’s role against the destruction of trees worldwide, State Farm should make consistent donations to organizations that support finding alternative methods to produce paper products or that seek to replant trees for posterity.

In the section for environmental consideration, this report alluded to the construction of an offsite data warehouse. This building could be constructed using “green-friendly” products, which are building materials that either do not negatively influence the environment or impose a significantly minimal influence on natural resources. Often, these materials are composed of recycled products that have been tested rigorously for safety.

Legal and Regulatory Considerations

When social responsibilities become an afterthought for companies, legal and regulatory issues can happen with greater frequency and intensity. As discussed in an antecedent section of this report, a human-resources department that is bereft of the recognition of the necessity of ethics in the workplace introduces substantial legal risk to the company.

For example, social responsibility should certainly inhabit every aspect of the recruitment process. Especially in the United States, which boasts one of the most diverse cultures in the world, a socially responsible company seeks diversity in employees. A diverse employee base provides an array of views that may ultimately benefit the customers to whom State Farm markets. However, a company that chooses that shows unsubstantiated preference to a part of the population, that is, primarily hiring from one ethnic group, is not socially conscientious. Millennials do not favor such companies and will actively boycott them.

Yet more than the reaction from the Millennials, the United States government will certainly interject itself. The Title VII Civil Rights Act of 1964 is a clear national mandate that discriminatory hiring practices are proscribed, and severe consequences will befall the institutions that pay no attention to this law. In the above example, the Equal Enforcement Opportunity Commission, the steward of the enforcement of the law, will investigate and make a determination on whether to pursue legal recourse against companies that are socially irresponsible in these areas.

Successful legal action against these companies are often financial in nature, that is, fines that can total in the millions per each violation. These successful legal actions are often published to the public as well, resulting in a tarnished company image both domestically and internationally. It should, then, be understood that such a reputation will most certainly influence the buying habits of State Farm’s customers, who are socially responsible and choose to do business with socially responsible organizations.

In fact, in each of the abstractions of social responsibility that is discussed in this report, failure to adhere to socially responsible guidelines may very well result in legal recourse. Taking a wanton attitude toward the environment may run State Farm afoul of the Environmental Protection Agency. Lapses in ethical leadership may run the company afoul of the bodies of government that monitor discriminatory employment. Disregard to sustainability concerns may earn State Farm the wrath of several governments in the world, depending on where sustainability malfeasance occurs. The results from each of these legal matters will be financial and threaten the viability of the company.

Legal Recommendations

It is recommended to retain legal counsel, preferably a discrete entity, that specializes in legal matters surrounding social responsibility. These social-responsibility legal professionals can collaborate with all areas of the company to ensure that it is compliant with as many laws as possible. For areas that are out of compliance, this legal entity should offer support in bringing the company in compliance.

But more than the initial collaboration with this entity, this legal counsel should be continuously retained to perform audits on social responsibility in the organization. These audits are crucial, since they will provide a mechanism for State Farm to refine its social-responsibility processes.

State Farm may also consider hiring additional legal counsel from different firms. Hiring multiple firms can provide redundancy in verifying compliance. It is possible that one firm may inadvertently neglect a certain area of social-responsibility compliance that another firm may notice and offer correction. A subsequent analysis must be conducted to determine costs, but the revenue generated from successfully marketing to a socially conscious consumer base will more than offset these legal expenditures.

Conclusion

With the perusal of this report, State Farm no longer has a reason to remain agnostic toward social responsibility. The financial benefit of maintaining a social-responsibility policy is that doing so places the company in a positive position with an increasing socially aware population in which it operates. Moreover, being socially responsible means that each employee in the organization will adopt a socially responsible attitude. It is these employees, both line level and leadership, that will move the company to greater levels of success in the new business world by being favored by as many consumers as possible.

References
accountability. (2011). Retrieved December 6, 2011, from WordReference.com: English Dictionary: http://www.wordreference.com/definition/accountability integrity. (2011). Retrieved December 6, 2011, from WordReference.com: English Dictionary: http://www.wordreference.com/definition/integrity Jayson, S. (2006, October 24). Generation Y gets involved. Retrieved from USA TODAY: http://usatoday30.usatoday.com/news/nation/2006-10-23-gen-next-cover_x.htm State Farm. (2013, January 7). State Farm: Insurance, Mutual Funds, State Farm Bank®. Retrieved from State Farm: http://www.statefarm.com/ Stengel, G. (2010, January 3). The definition of social responsibility needs to encompass both our business and personal side. Retrieved from Ventureneer: Building Successful Enterprises with Heart: http://ventureneer.com/vblog/definition-social-responsibility-needs-encompass-both-our-business-and-personal-side THE REAL DEAL. (2011, August 9). Developers pander to buying power of Gen Y. Retrieved from THE REAL DEAL:


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