What is a socially responsible business?

Milton Friedman once famously posed this question:
“Do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible?”

His answer was “No, they do not.”

And that’s how modern business had operated since the industrial revolution. Efficiency and profitability were the only games in town.

That Milton Friedman quote was from a New York Times article in 1970. But the times, they are a-changing. The dynamics of starting and running a business are changing. The question is, how will you and your business evolve?

Entering the fray from business schools across the world are a new crop of entrepreneurs. They call for things like “conscious business,” “connected capitalism” and “social entrepreneurism.” Companies like Toms Shoes make giving back a central tenet of their company. Their company mantra is “One for One™.” If you’re not familiar with Toms Shoes (hyperlink), for every pair of shoes a customer purchases, they give a pair to a child in need. And, more importantly, Toms is profitable.

New York State recently created a legal framework for socially responsible businesses, also called “benefit corporations.” The legislation was supported by Patagonia. Yvon Chouinard, the founder of Patagonia said:
“The modern corporation was ‘born to be bad.’ Benefit Corporations are ‘born to be good’ because their corporate purpose must include the pursuit of a material positive impact on society, not just shareholders.”

Neville Isdell, the former CEO of Coca-Cola, sees this evolution of capitalism as broader and deeper than just traditional philanthropy—it’s the future trend of business:
“It goes beyond supporting a good cause that may be the pet project of the current CEO to supporting societal needs that connect to and have a direct impact on the footprint and strategy of a particular business.”

Old versus new

Is focusing exclusively on the bottom line, or maximizing profits, a good thing for business? Maybe for the short-term of the business, but is it good in the long-term? That’s what caused a lot of the problems with Apple once Steve Jobs left. They stopped investing in products and started focusing on profits.

Furthermore, is focusing only on profits good for people, the community or the environment? If a person focused solely on maximizing their profits to the exclusion of everything else, would that make for a good human being? What some people are now asking is, “Would that make for a good company?”

In a recent New York Times editorial by Greg Smith, a former Goldman Sachs employee, he outlines how profits for the company were prioritized over the clients’ needs. It led to a toxic and destructive environment. If you’re not serving your clients, Smith argued, you’re not serving your business—and you can’t do business with yourself.

Brand image and profitability: The story of Craftsman Tools

In this age of the 24-hour news cycle and social media networks, you need to navigate your brand carefully through the waters of public opinion. This is a lesson the Sears Roebuck Company learned the hard way. Sears created the Craftsman brand in 1927. For years, it was a brand based on quality and the “unlimited lifetime warranty.” Craftsman was generally considered to be one of the most trusted brands for quality, second only to Waterford Crystal.

However, in 1998, Sears decided it didn’t matter where Craftsman Tools (previously made in the USA) originated. So Sears dropped stateside suppliers and moved manufacturing offshore—mostly to China. China has significantly cheaper labor rates, so Sears saved money and increased profits. But they hurt the brand integrity of Craftsman. As a result of moving manufacturing to China, the Craftsman brand came under attack. A lawsuit was filed in 2004 against Sears for false advertising and consumer fraud for questionable use of the “Made in USA” slogan. Many Craftsman customers have since refused to purchase the Chinese-made tools.

Uncharted Territories: Corporate Life Beyond the Bottom Line

It may be hard for most companies to suddenly change direction. But a company doesn’t have to become a Toms Shoes in order to make a change. You can make a difference by making smaller changes, at least in the short term. In the words of Rosabeth Moss Kanter, a Harvard Business School professor:
”Think of it as embedding a wider look at society into every aspect of operations and using that to drive the business strategy. That’s a way companies can find new opportunities for growth and for innovation—which always stems from unmet needs and unsolved problems in underserved markets. And it’s a way to motivate people and supercharge the organization with energy and commitment in tough times.”

Corporate social responsibility (or CSR for short) is a growing focus in the business world. Traditional views about competitiveness, survival and profitability are being swept away to make way for the new. In fact, there is increased consumer awareness and interest in this arena. In a recent survey by Environics International, more than one in five consumers reported having either rewarded or punished companies based on their perceived social performance.

First Steps to Doing More Good as a Business

So how can your company do more good? There are concrete steps any business can take. In fact, having such a focus can help smaller businesses attract talent and take away the advantages larger companies may hold. Here are three easy ways to get started:

  1. Create a mission statement—Put your company’s goals, principles and operating procedures down on paper. These values should be given to all employees, and the employees should be given the resources to attain these goals. This mission statement should come from the President or CEO. For example, here is Tom’s of Maine’s mission statement.
  2. Create ways to measure progress and performance—Now that you’ve created a mission statement, you can measure progress against social, financial and environmental goals. Just as financial reports help the company focus on cutting costs, environmental and social audits help sharpen company ideals. For example, along with financial reports, a company can create annual reports on social and environmental performance.
  3. Create “Green Teams”—These teams, comprised of employees from different departments, can help develop strategies for improved environmental performance. These teams must be supported and empowered by senior management. For example, employees might point out significant savings can be made and waste reduced by moving to digital formats like PDFs instead of paper printouts.