Adam Smith’s idea of the Invisible Hand of self-interest started the economic debate that under competitive conditions, profit maximization by firms leads to the most efficient allocation of resources, lower prices and larger aggregate output. This was the spark that started the academic and professional discussions about profit maximization. Opinions like Milton Friedman’s:“ There is one and only one social responsibility of business – to use its resources and engage in activities to increase its profits” were raised bold and clear (Khandwalla, 2004).
The dominant paradigm today, both in corporate management and in business education, is profit maximization and the maximization of the wealth of the owners. Profit maximization is seen as a metric for success and competency. Corporates face an enormous pressure from shareholders to increase their wealth, which has resulted in driving corporations’ code of conduct, CEOs strategies and employees performance towards a culture of “achieving profit at any cost”. Economies soared, and consumers benefited from this too, in the form of more options, better products and services and competitive prices. Nonetheless, there was an expensive price to be paid.
Fragile societies, lacking proper governance, health and ethical foundations paid the expenses of the success of the corporate world. Those societies paid the price in the form of diseases, sweat shops, corruption, pollutions, accidents, shorter lives and deprivation from livelihoods (Khandwalla, 2004). Additionally, this paradigm of profit maximization has been proven flawed from economical and financial points of view. The obsession with ‘profit at any cost,’ when carried to an extreme, has lead to Enrons, WorldComs, Parmalats and Depressions (Khandwalla, 2004).
With the increasing intensity of those negative effects, it has become almost impossible to deny the role corporates play in shaping cultures and societies. McDonald’s and other fast food restaurants have been blamed for obesity problems and children’s malnutrition, BP has been held responsible for destroying marine life in the Gulf of Mexico therefore paralysing the economy in this area, and Nike and Nestle were accused of exploiting labour and having sweatshops. Major consequences and dangerous accusations that can outbalance any positive effect any of those companies have created instantly.
The same consumers, which those companies are trying to serve and are competing to please, are at the heart of those negative effects. The consumer is either a direct victim for the negative externalities such as pollution, illness or corruption, or is a partner in the creation of those bad consequences, since they, ultimately, are buying the products and services from those companies. This has created consumers more aware and sceptical than ever.
Ethical movements and ethically responsible behaviour constitute a market trend that has been gaining popularity ever since 1990-2002 (Davies, 2007). The percentage of Global Monitor respondents who feel their choices and deeds can make a difference to the world around them increased from 57% in 2011 to 64% in 2012.
Public’s faith in business motives is deteriorating significantly. There is an assumption that firms will rip people off whenever they can. In the period between 2010 and 2012 the percentage agreeing with the statement ‘If the opportunity arises, most businesses will take advantage of the public if they are not likely to be found out’ rose from 63% to 71%, according to The Future’s Company briefing. Additionally, the briefing shows that 86% of respondents agree with the statement that ‘Big business maximises profit at the expense of community and consumers’.
Heightened corporate attention to CSR and to create “good” associations to their brands has not been entirely voluntary. There was a business need to start balancing between doing well and going good. Companies realized in order to stay competitive, let alone stay in business; they need to show their consumers that in addition to caring about profits, they also care about humanitarian issues.
Companies started to deploy special practices to convince consumers that they are good companies. Giving money to charity, donating money in areas of disasters, giving out education scholarships and educating consumers about issues of health, are all just some examples. The sciences of Reputation Management and Corporate Social Responsibility have emerged and companies started investing heavily in those areas.
But corporations seem to be struggling with incorporating “doing good” to their business strategies aimed at “doing well”.
“Doing well” and “doing good” are opposites on one continuum. Doing “good” is an equivalent to adding value (such as; education, infrastructure, opportunities and solutions to illnesses and poverty) to the society or to the environment, and doing well is an equivalent to extracting value (money, water, land, air and different resources) from the society and the environment. Doing good is aimed towards benefiting the society, while doing well is aimed towards benefiting the company. They serve different ends, and could be seen as opposites. Any focus on one of those ends would result in a loss of some sort on the other. Focusing on maximizing profit would require compromising on some ethical, environmental, employees or health aspects, while a focus on doing good and being a responsible business would put more resources into work at an objective far from achieving profit. Both options are not ideal.
Observing companies, there has been two main ways to attempt a balance between doing well and doing “good”. The first has been to create positive associations to brands. Companies and advertisers started creating love brands to make consumers fall in love with those brands on the basis that they are good, or better than others. Such efforts that focus on the exterior image are more of cosmetic measures (Porter and Kramer, 2006). Coke is an example. It is a great feel good brand! Coca Cola’s mission statement stated: “The Coca Cola company exists to benefit and refresh everyone who is touched by our business.” Everything Coke does creates a little happiness and lifts the general mood in a way or another. The brand exerts an effort to be seen as an optimistic brand, and in the way of doing this, it spreads optimism and leaves people happier by watching or seeing advertisements, interacting with the brand through a “Hug Machine” or by winning a dance competition and fulfilling a lifelong dream. Coke is a good brand for doing this, and its campaigns have had a great impact on its profits and value, proven by the announced brand value of Coke that reached $50.2 billion in Forbes’s list of the world’s most powerful brands. Despite this, Coke has to deal with accusations related to its attempts of increasing sales by targeting children, also the fact that drinks containing Aspartame and other chemical additives are bad for health, children’s especially. Although Coca-Cola is the best selling soda brand, sales for the soda category have declined seven straight years in the U.S. (Forbes issue of 22,Oct, 2012), and if this continues, it might affect Coke’s business. This does not seem like a great and a sustainable balance!
The second way has been for companies to change few operational measures to neutralize some negative external effects. Those companies would, for example, choose sustainable energy, reduce carbon emission, launch an initiative here and champion a project there, while engage in other harmful activities somewhere else. British Petroleum (BP) is an example. BP has been keen on building themselves a CSR leader position throughout the years that preceded the Deepwater Horizon Tragedy. BP’s Beyond Petroleum initiative worked towards finding renewable sources of power, making operations more efficient, in addition to reducing overall carbon emissions in extracting petroleum. Environmentalists started recommending stopping to fill up at BP because of their reputation as a greener company. Browne, a former CEO of BP said: “I was the chief executive of an oil company and I was about to become an environmental activist.” The message was clear that BP was set on creating a new future. Sadly, that future that BP has planned was killed on April 20, 2010, the minute the Deepwater Horizon exploded in the Gulf of Mexico, killing 7 workers and spewing oil into the Gulf at an alarming rate. This tragedy was the result of many violations including BP’s noncompliance with environmental regulations and worker safety. (Cherry, Sneirson, 2010).
Those two interpretations and examples point out the gap. Most of what companies do is cosmetic. The responses companies have made have not been purely strategic or operational, but rather in creating beautiful worlds around their brands, and injecting stories for consumers to believe. Although, some might argue that those efforts do result in a positive overall general mood, and that they do inspire people and societies to do good, new approaches are needed to integrate social considerations more effectively into core business operations and strategy. It should move from looking good and mitigating harm to reinforcing corporate strategy and profit through social progress.
Theoretically speaking, brands and companies as we know them are takers, “value extractors” (Hugh Davidson, 2012). Profit is their focus, and the way they operate is designed to serve this purpose. The idea of doing “good” came as an addition to an already established system of extracting value and transforming it to profit. A great balance is difficult to achieve in such a case. Existing systems were not designed for that. In order to achieve a great balance, companies should start looking at themselves as givers, “value adders”, and understand that a more effective route to long-term profits is to better meet or revolutionize customers’ social and environmental needs, and while at it, make profits.
In my opinion, to create a sustainable balance between doing well and doing good, companies must carry serious changes in different areas:
Rethink Existing Business Models: The usual approaches to corporate social responsibility, and doing good are usually fragmented and disconnected from the business strategy. A top down approach, where doing good is what the business is all about can actually work, and would provide a natural balance. If profits go up, naturally, more goodness would be done. CSR and adding a good side to the business can be more than a cost, a burden, or a charitable short-term act, why not look at it as an opportunity to innovate business models, and have a unique long lasting competitive advantage?
Although there are not many examples of business models that place the act of “doing good” at their core, there is hope for new thinking in this area shown in the business model of Panera Cares Cafes. Those are cafes that attack the growing epidemic of food insecurity in America. People, at those cafes, eat tasty, nutritious food in an uplifting environment and pay whatever they can afford. The innovation was to create a business of a shared responsibility where customers decide what to pay. Those who pay a little more than what they owe help those who can’t cover the full amount (Ron Shaich, 2012).
The world is full of hunger, poverty, illnesses and abuse. Creating an organization that makes profit out of solving those problems would be the genius revolution in the history of corporations and would create the ultimate balance. Those companies will have a different type of relationship with their consumers. Those companies would not be luring consumers to buy; instead they will be motivating them to participate in solving world problems.
Revolutionize Consumer Demand: Companies are now seen as a force of social, economical and cultural change, a responsibility that was thought to belong to the government in the past. Stemming from this, companies should consider leading a revolution in managing consumer demand. “The blind are leading the blind into the commodity trap” (Fearne, 2010). Companies have the opportunity to revise the value they offer to consumers that would change their behaviour. Companies must work more, to understand consumers well enough in order to influence their behaviour towards buying responsible and ethically produced products.We have seen many successful examples in this area that are non-CSR related, where companies transformed demand in the favour of their products. Visionary companies such as Apple and Google have influenced usage and changed habits, which resulted in purchases of their products and services. So why not learn from those examples and try to revolutionize demand towards ethical consumption? The efforts of those two companies have revolutionized consumer attitudes, expectations and behaviour in their industries.
To achieve a balance between doing well and doing good, companies should follow a similar model. If one company steppes in and offers something too big and revolutionary that it changes the face of the industry, other companies will find themselves forced to follow suit in no time. It would only take one “Apple” to transform the competitive scene, set new standards and force companies to alter their strategies to achieve a real balance between doing well and doing good.
Achieve Integration: CSR is sometimes seen as one of the deliverables that are “good to have” for Public Relations stories. Doing “good” should not be perceived as a nice plus. It should be seen in everything the company does. Just like any strategic decision a company pursues, doing “good” must be a top down strategy that is integrated at the different managerial levels of the company.
Having a top down approach to CSR that is integrated at the different levels, would deliver many positive results in the quest to creating a balance. First result is, better efficiency, as it would allocate and direct all resources towards “doing good”. Second result is a more focused approach to CSR that defines the mission of the company.
Integrating the concept of CSR within the company should go beyond the PR or CSR departments. It has to be seen at the company’s culture, employees training, worker safety and environmental standards. Having a culture of “doing good” and encouraging employees to be innovative and creative to think of ways to combine doing well with doing good is ought to turn out with great results.
Success stories that resulted from high integration were seen in many organizations. Apple’s strive for perfect design and technology should inspire companies to implement a similar model when it comes to approaching their CSR. Any strategy should be implemented across the board for it to succeed, and should not just be locked in one department.
If companies now have the privilege of choice, when it comes to whether or not to balance between doing well and doing good, soon they will no longer have this choice. It might not be for the sake of keeping their consumers happy, it could very much be for the sake of keeping their businesses going, once the resources become scarcer and more expensive. Just like companies started engaging with CSR for a business reason, a business reason would force them to find a way to perfect the balance.