More companies are adding cause related or social responsibility initiatives, especially since this appeals strongly to millennials. But will investors accept this, since many believe it is in conflict with the traditional goal of companies – to maximize shareholder wealth? Will the brand image benefits convince investors otherwise?
There is a definite trend of more companies committing to a specific social mission, whether it involves environmental, health, poverty, social inequality, or other sustainable initiatives. However, the immediate reaction by many investors is that this will only increase costs and lower profits. More fundamental is their belief that such social benefit acts conflict with the traditional goal of business: to maximize long-term shareholder wealth. So is there room or justification for corporations to pursue both social and economic goals?
This question is complicated. Should businesses attempt to solve societal ills, or leave this to the government or nonprofit entities? Is there a conflict between all the stakeholder groups, many of whom support social improvements, and investors/stockholders who are only interested in quarterly earnings? Traditional economists like Milton Friedman would argue that a company should have only one fiduciary responsibility, to increase shareholder value, which represents their version of “social responsibility.”
The balance of profit and social purpose becomes murkier when trying to define the real benefit of many sustainable initiatives. Most sustainability efforts, such as saving energy, cutting waste and streamlining logistics, can be classified more as efficiency practices which will actually increase profits. When such efficiency initiatives extend to the supply chain or to consumers, the resulting benefits are more tangible – for example, reducing carbon emissions or water conservation.
One possible answer to this conflict rests with the rise of “B Corporations” (B for Benefit), now accepted in 27 states. This concept was popularized in 2005 when an entrepreneur, Jay Coen Gilbert, co-founded a sports shoe company. The company mission was based on Jay’s “triple bottom line:” profit, people and planet. It involved many charitable and sustainable activities. He sold it soon after, and frustratingly watched the new investors dismantle most of these social programs.
Recognizing that many business owners still want to pursue nonfinancial goals, Jay started the “B Lab movement” which encourages companies to add certain social goals in their company charter to become a certified “B Corporation” (this also provides some legal protection for these goals). This certification is voluntary, but it does act like the “Fair Trade” label for coffee in that it is a sign that the company is committed to meeting certain standards that go beyond financial benchmarks. Other requirements for this certification include complete transparency with employees, environmental policies that reflect their environmental footprint, and completion of a company assessment. While not guaranteed, this B status can help a company protect against investors eliminating such established social policies and remain independent.
For other companies, the issue of shared economic and social values still divides short term oriented investors who are inherently motivated by numbers, and business leaders who also want to contribute to society. Incorporating social reform in their mission early on will help, since these activities must be considered strategic, as the benefits don’t become evident, financial or social, for some time. Johnson & Johnson defined its credo in 1943, still the heart of its business model, stating that its first responsibility is not to investors but to doctors, nurses, and patients. This policy has distinguished J&J’s reputation and brand image among all stakeholders ever since, with a consistently impressive financial track record.
Another issue is the gap in how business leaders view social causes and what they are actually doing about this. In a survey in 2013 by MIT and Boston Consulting, they found that among 2,000 companies, two thirds of business people thought social and environmental matters were “significant” or “very significant”, but only 10% felt they were doing enough about it.
In the future, this trend for more active corporate participation in social reform will accelerate, pushed by the desires and values of the younger generation. Today’s 83 million millennials will account for 75% of the work force by 2025 and they will be demanding a greater social role by corporations. From a branding perspective, companies should view this as an opportunity to strengthen their relationship with tomorrow’s dominant customers (millennials), by creating new, meaningful cause-related programs that are consistent with and can even enrich their brand image. Ideally investors will eventually realize that social responsibility is not only ethically right, but can also assure steady profitability when coupled with efficient sustainability programs and a stronger appeal to millennials (i.e. resulting in greater profits and an expanded customer base for more revenue). Hopefully we will be living in a world of balanced values, both social and economic.
