Make Money, Do Good
Corporate Social Responsibility is most efficient when it is mutually beneficial for both shareholders and stakeholders
“There is one and only one social responsibility of business—to increase its profits.” This quote from Milton Friedman is the centerpiece for individuals having the assertion that corporate executives, who serve as agents, only have obligations to principle shareholders. In most cases, Friedman is taken out of context. Although corporations are to increase profits, they must “engage in open and free competition without deception or fraud.” In order for a corporation to participate in the market, the business must operate under the premise of responsibility to its competition, the community, employees and the customers it relies upon. “No one would engage in a business contract with a corporation if they thought for one minute that a corporation was not responsible to pay its bills, for example. So clearly, therefore, a corporation can have legal, but also moral responsibilities” (J Friedman, 2013). The parameters surrounding the business community have changed a great deal since Milton Friedman. Consumers demand quality, employees demand a proper wage, and communities demand a company that supports regional growth. These demanders are stakeholders, the group that is often forgotten and disregarded in the pursuit of profit. In response to the changing perception of the corporation’s effect on society since Milton Friedman, businesses have responded by using corporate social responsibility as a tool to strengthen its relationship with shareholders and stakeholders. Research has thus proven that the best strategy for corporate social responsibility is based upon Porter and Kramer’s theory of shared value and mutually beneficial relationships.
Peter Drucker, an influential leader in the field of management science identifies between two types of corporate social responsibility in The Age of Social Transformation. Business can either do something to society or do something for society. This distinction establishes the first rule of corporate responsibility—do no harm. “If a business is not successful in satisfying that imperative, no amount of charitable giving, employee volunteerism, or creative ideas around social innovation is going to matter” (Karoff, 2012). For example, if Major League Baseball invests in supply chains that preserve the forests and trees needed to produce baseball bats, the company is not only doing no harm, it is also properly coexisting with the world. Note that in this example, Major League Baseball is attempting to use its creativity to avoid a future concern. Often, corporate responsibility only becomes a priority when the firm is required to correct a misdeed. The BP oil spill in the Gulf Coast is an example of a company that has begun to address its issues after a disaster has already occurred. Admittedly however, BP’s newfound social responsibility campaign is a good step. “Turning a negative into a positive is a very good thing indeed” (Karoff, 2012). Accountability must be a concern in order for corporate executives to proceed accordingly.
The partnership between for profit business and charitable organizations do not always operate on the same values. The corporation side of the argument has been highlighted in Milton Friedman’s essay. He correctly believed that the cloak of social responsibility is an issue. Some companies will participate in charitable processes in order to “look good whether or not the activity is worthwhile” (Schumpeter, 2013). In other instances, corporations will still be publicly ridiculed in the wake of corrective responsibility. In the aforementioned BP example, the company took a major hit in the court of public opinion even after donating to various environmental organizations. On the charity side of the issue, nonprofit organizations “are often reluctant partners, since they risk accusations of selling out.” Organizations receiving large donations from the textile industry, for example, face a conflict of interest. Accepting large funds from an industry that is known to have poor wages and working conditions creates a disconnection between the beneficiaries of charity and the companies that fund the programs.
On one end, partnerships can improve relations with regulators. For instance, “the WWF, an environmental charity, helped Coca-Cola defuse a damaging conflict in India which at one point led to the Indian Supreme Court demanding that the company hand over its exact (and still secret) formula” (Schumpeter, 2013). On the other end, companies provide the necessary money that charities need to operate. Companies can also have a greater impact on change as opposed to the charities doing the work on their own. “All that said, the benefits of partnerships will never be uniform, smooth or even very satisfying. Some alliances are well designed; many are not. Some firms are committed to the idea; some are not…but on balance they are forces for good” (Schumpeter, 2013).
In 2011, Porter and Kramer’s idea of shared value was well received by many large corporations but not everyone was convinced that this was the solution. Larry Summers, the former United States Treasury Secretary, a colleague of Porter’s at Harvard, was opposed to this concept. “Summer’s offhand comment captured the core argument at the root of corporate global governance efforts. There is a wide chasm between those who believe that corporate social responsibility and sustainability are integral to company profits and growth, and those who believe such efforts are public relations at best and a distraction from core activities at worst” (Whaley, 2013). Businesses want to know whether social responsibility adds value and profitability to a company. If the concept of shared value is to gain widespread acclaim among shareholders, the question of corporate profit must be answered. Companies in the free market economy need an incentive to provide resources that benefit stakeholders. Good will alone cannot be relied upon if one wishes to influence change.
Alice Korngold, a corporate social responsibility consultant to large firms believes that Porter’s basic ideas on mutually beneficial relationships are correct. “There is no question that companies that are the most effective in integrating sustainability in their values and strategy will be the most successful in increasing shareholder wealth,” she said in an email interview. “Businesses that are the most innovative in finding solutions to global challenges—such as climate change and energy, economic development, education, healthcare, human rights, and protecting ecosystems—will be the most profitable.” While the exact dollar amount on the value of social responsibility is not always quantifiable, the trend towards this practice has shown to produce a positive long-term effect on shareholder’s profit margins and stakeholder’s well-being. The key is for corporations to focus on causes that directly affect their own relationships. Properly quantifying data and placing a dollar amount on investments is a way to incentivize companies to push for generally accepted ideas on social responsibility.
An example of a mutually beneficial corporate and societal relationship is Major League Baseball’s (RBI) Reviving Baseball in Inner Cities Program that promotes the growth of baseball. Baseball is a sport that requires a lot of equipment, fields, large teams, and various other resources that are not readily available to America’s inner city youth. The program’s goals as stated on its website is to increase participation and interest in baseball for the under-served youth, encourage academic achievement for college ready baseball players, and teach the value of teamwork. New Balance, Majestic, Wilson, Louisville Slugger and Rawlings are all corporations that partner with the RBI program to fund the cause. This program succeeds because it is focused on the specific interest to promote baseball. Over $30 million has been allocated to the organization and more alumni of the RBI program are going to college and later being drafted to the major leagues as a result. According to Porter and Kramer, “an affirmative corporate social agenda moves from mitigating harm to reinforcing corporate strategy through social progress.” The RBI program certainly mitigates harm. It has a social agenda of promoting teamwork and academic success. It also reinforces corporate strategy by training an underutilized market, talented inner city youth, to later succeed in the sport and create profit for the firm. It is true that “the more closely tied a social issue is to a company’s business, the greater the opportunity to leverage the firm’s resources—and benefit society.”
With all things considered, the market does not always produce positive relationships between stakeholders and shareholders. However, many corporate executives have begun to believe that the only way to benefit society is to have no pressure applied to corporations. “They argue that the market will reward good deeds, so the public sector need not issue mandates. This rhetoric is appealing, but it doesn’t always line up with the facts” (Chatterji, 2013). It is ideal to have companies be socially responsible on their own, but it makes sense for the public and elected officials to make sure corporations are not causing harm to the community and also producing a social benefit.
Shared value, Porter says, points toward “a more sophisticated form of capitalism,” in which “the ability to address societal issues is integral to profit maximization instead of treated as outside the profit model.” As Steve Lohr of the New York Times infers, “good intentions cannot be brushed aside as small gestures at the margins.” It does no good to have John D. Rockefeller hand out dimes to the poor if that means he will later exploit those same people. It is important to note that the shared-value concept is not simply a moral stance of good versus evil. It is about using the market to address social concerns. General Electric incorporates a business plan that invests in technology that lowers energy and water consumption in its manufacturing. The company “generated sales of $18 billion, up from $10 billion in 2005, when the program began.” General Electric’s chief executives admitted that profit was their goal and a socially responsible practice led them to that promise. IBM is another example of a socially responsible company that has begun to promote a “Smarter Cities” initiative to track various missions such as managing traffic, public health, optimizing water use, and fighting crime. The results here have been positive as well. Without question, a corporation is obligated to first make money. Evidence has shown that profit does not have to be sacrificed with CSR initiatives. All that we ask as stakeholders is for those same corporations to do good, also.
Work Cited
Chatterji, A. (August 29, 2013). When Corporations Fail At Doing Good. In The New Yorker. Retrieved November 3, 2013, from http://www.newyorker.com/.
Facts About Reviving Baseball in Inner Cities (RBI). In MLB Community.org. Retrieved November 3, 2013, from http://web.mlbcommunity.org/.
Friedman, J. (June 12, 2013). Milton Friedman Was Wrong About Corporate Social Responsibility. In The Huffington Post. Retrieved November 3, 2013, from http://www.huffingtonpost.com/.
Karoff, P. (December 10, 2012). The First Rule of Corporate Social Responsibility is Not What You Think. In Stanford Social Innovation Review. Retrieved November 3, 2013, from http://www.ssireview.org/.
Lohr, S. (August 13, 2011). First, Make Money. Also, Do Good.. In The New York Times. Retrieved November 3, 2013, from http://www.nytimes.com/.
Schumpeter. (November 2, 2013). The Butterfly Effect. In The Economist . Retrieved November 3, 2013, from http://www.economist.com/.
Whaley, F. (February 20, 2013). Is corporate social responsibility profitable for companies?. In Devex Impact. Retrieved November 3, 2013, from https://www.devex.com/.
