Dr. Rod Wallace contributes to today’s guest post. He is a Fulbright Fellow, economist, consultant, and speaker who helps businesses make more money by solving society’s problems.
Corporate Social Responsibility (CSR) can be more than society crying for help. It can also represent a fundamentally new approach to creating profit that will enhance investor return for the long term: CSR can strengthen society, enhancing the value that business obtains, by developing suppliers, educating future employees, and expanding demand for higher-value-added products and services. However, to become that approach, CSR must evolve, becoming increasingly powerful insights, tools, and strategies to deliver meaningful social change.
Skeptics look at CSR as businesspeople greenwashing their guilty souls, or tactical publicity stunts. A certain amount of CSR is certainly good for a traditionally operated business. Millennial employees, in particular, are engaged by CSR, and that attraction provides a critical benefit, especially in a tight job market. Customers, suppliers, and others are attracted by the related public relations announcements. No wonder more than 60% of Fortune 500 companies in every sector provide CSR reports.
Yet, without a long-term benefit anchor, the skeptics’ argument may be correct. During a recession, a business leader may think, “I no longer need gimmicks to attract and retain employees. Our investors are best served by eliminating any CSR cost that solely benefits society and the environment.”
But that business leader would be missing incredible potential. CSR can be key to a source of fundamentally new sources of investor value, as well as value for the rest of society. Through coordinated, coherent action, business can strengthen the society in which it operates: enhance suppliers, educate future employees, and expand demand for higher-value-added products and services.
Particularly high potential derives from the effort to deliver on business’s “original social responsibility.” Every industry originally flourished because it fulfilled a fundamental social need. For example, the food industry developed to efficiently deliver nourishment, and healthcare to deliver support that helps us obtain long, healthy lives.
Business creates its primary value for society by satisfying such original social responsibilities. And the measure of how well a business satisfies that need is, in concept, profit: a financial reward for those who find innovative ways to satisfy society’s needs.
However, as I illustrate in my book Drowning in Potential, How American Society Can Survive Digital Technology, more than 60% of today’s American economy is dedicated to industries failing to deliver on their original social responsibilities:
- Our food doesn’t nourish us as it should: the obesity epidemic is now global, and levels of micronutrients are decreasing in much of our produce. We are on track for American loss of life from food and eating patterns at least nine times greater than World War II casualties.
- Americans spend vast amounts on healthcare. Yet we have the shortest lives in the developed world, and they’re recently getting shorter, as depression, suicide, opioids, and other poor lifestyle choices become growing problems.
- Despite large increases in educational spending, huge portions of American college graduates cannot understand a simple table or make a cohesive argument (Belkin 2017).
- Most cities on the forefront of developing digital technology provide insufficient housing, despite plenty of available land (Hsieh and Moretti 2017). As a result, the number of those individuals (largely in the tech hubs) who deeply understand and can best develop and apply that technology is reduced: people interested in living in Silicon Valley, Silicon Alley, and the other tech development centers simply cannot find affordable housing. As Hsieh and Moretti explain, this may reduce how effectively new technologies are applied across the entire economy, costing the US as much as 40% of our economic growth over the past several decades.
There is massive value potential for society—and investors—for those solving such fundamental problems.
However, delivering such core value today requires a toolbox that combines both typically for-profit actions and those we think of as socially responsible. From that toolbox, aligned and complementary actions must be chosen: those that create the society that values, recognizes, and delivers the complementary actions rewarded with profit. Large stores of benefit do not arise simply from an alignment of some company’s actions with the UN goals for Sustainable Development; value created depends also, and critically, on whether those actions change the fundamental nature of our social interactions and outcomes.
Improving our health requires more than a healthcare industry featuring a bright physician who recognizes medical problems and can implement the most relevant pharmaceutical and surgical options. We must ensure social systems are in place to support eating healthfully, exercising, and following doctor’s orders. Delivering nourishing food require more than just placing an ear of corn in front of a hungry person. Consumers must understand the basics of healthful choices, and food labels must be both comprehensible to the average consumer and representative of food scientists’ innovative efforts. Education requires all children get to school safely, learn basic skills, and receive an answer to the question, “If computers will be smarter than humans in a few decades, why does my education matter?”
Only when we integrate traditional business tools with socially responsible approaches can we overcome such problems and fulfill a business’s original social responsibilities. A fractured approach with businesspeople entering the community from time to “do random good” will continue to breakdown and fail. And an integrated approach requires a higher level of leadership featuring a clear vision of the world that business, social, and in some cases, regulatory efforts will create.
Translating innovation into business profit as well as social value requires fresh thinking, but the potential for value creation is massive. Do the business leaders who embrace CSR also embrace the higher level of leadership required to integrate social responsibility fully into business? Do decision-makers fully understand the potential for translating technology potential into consistently positive societal outcomes? Will individual businesses consider their own futures, and collaborate across industries to fulfill their original social responsibilities? Will managers adopt the tools that clarify the interplay between actions we currently consider for profit with those we think of as socially responsible? Will investors and their managers enforce a socially responsible framework that delivers to them, as well as society, the greatest possible return? In short, will you and I reap the broadest possible rewards of advancing technology?
We’ll find out over time, but we cannot just wait and see. We must act. Our society cannot just survive. For the sake of our children, it must thrive.
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Interesting to read about companies “original social responsibilities” and the importance of complementary measures to CSR when delivering on those responsibilities. You also made an important point about the role of CSR in today’s business world even in times of recession. In this regard, do you think the recent stance taken by the Business Roundtable – “Each of our stakeholders is essential” and not just the interests of investors – is indicative of a positive paradigm shift and reflects the high-level integrated approach you refer to as necessary to achieve long-term change? https://opportunity.businessroundtable.org/ourcommitment/
I’m glad you enjoyed the post, Liemertje.
Statements by business groups such as the Business Round Table supporting social responsibility are certainly positive. So are statements of CSR support by organizations representing investors such as Blackrock, Vanguard, and CALSTRS (all three expressed support for CSR during the Weinberg Center’s Corporate Governance Symposium (here), for example).
At least in part, I think such statements are a response to people wanting to be able to tell stories about what they buy: the pink rhino horn sink faucet ‘were modeled on ones in Elvis’ bathroom, for example. Or, more constructively these sautéed mushrooms were grown by a company operating a prison-to-society work program. With the fever-pitch around many social issues, such socially responsible stories are particularly compelling.
Will this lead to long-term change? It depends on how impactful the resulting socially responsible efforts are. Changing our social systems so that people actually begin to eat more healthful food, just to take one example, is a big, complex problem. Organizations focused on this area must collaborate effectively, and such effective coordination is currently uncommon. It’s unclear yet how society structures efforts that will re-design such complex systems in a way that rewards all actors for their work. It’s possible, but we still have to (consistently) get there.
Firstly, I would like to say I find this a very interesting article as it makes clear how a fractured and the lack of corporate social responsibility affects our day to day life.
I would like to start off with a quote: “Future fit businesses, operating forever, would not only do no harm, but do well by only doing good.” (Edward James Consulting Ltd)
This is in my opinion exactly what corporations that apply Corporate Social Responsibility (CSR) correctly have the possibility to become: ‘a future fit business’. In other words, if corporations don’t misuse it as a marketing tool in order to mislead society with greenwashing practices it could truly be beneficial on multiple levels. Namely, it could be (I) socially beneficial, (II) environmentally regenerative as well as (III) financially rewarding. This is the concept of a ‘flourishing enterprise’ having a tr-impact by being tri-profitable. I believe that in a way it is going back to basics, by fulfilling its ‘original social responsibilities’. On the other hand it can be so much more than that. As CSR touches so many different aspects, such as human rights, corporate governance, the environment, health and safety, economic development, etc. , it might be a challenge for corporations to shift all at once and like mentioned in the article it will require strong leadership and a fresh view. Hence the importance for the leadership of corporations to understand the benefits, they, and not solely the society or environment, can reap in the long haul when applying CSR correctly (with long term thinking and integrity). It requires to abandon the ‘doing business as usal’ approach.
To give just an example, maybe an extreme but a very comprehensible one, to make clear what I also want to point out: The founder of AMG services, Scott Tucker is a good example of a self-made businessman who used the loopholes in the system to create a company that basically generated multiple billions in revenue by ripping of the most vulnerable people of the society. When asked in an interview whether he thinks that what he did can be considered to be ethical or not, his answer explains what is wrong with probably most corporations these days. He simply answered: “I am a busininessman”. Considering that this businessman had power over the lives of at least 4.5 million Americans, and simply suggests that a businessman should not be ethical is downright criminal. Sadly, he is not the first, nor will he be the last CEO that shares this point of view.
I do admit that a company that only does good might seem a bit utopian. However, the need for corporate citizenship executed by strong and fresh leadership is a pressing matter that this article has put forward in a very clear way.
This comment has been made by Dr Rod Wallace, I am publishing it here on his behalf:
“Hi, Laura,
Thank you for your insightful comment. A realistic dream is to have businesses doing what is in society’s interest. That is a wonderful message, and it does sound a bit utopian.
However, I would describe that goal a bit differently: a realistic goal is for businesses to work with society so that there is greater alignment between what is in companies’ interests and what creates value for society.
Consider the Scott Tucker comments that sound so vile: they highlight the current lack of alignment between business rewards and social benefits in the pharma industry. Dig a bit deeper and find that industry professionals at the National Institute of Health suggest that existing pharmaceuticals likely effectively treat many diseases currently labeled “untreatable” (https://videocast.nih.gov/summary.asp?live=35412&bhcp=1). Yet, we cannot find the right business model to profitably deliver those existing treatments.
Any pharma industry leader who thinks about the contrast between Tucker’s financial success and society’s current losses must feel sick to their stomach. Certainly, that leader feels sick for society’s loss—but ALSO for missing returns to their investors. Pharma industry returns to investors today are nothing special (https://www.forbes.com/sites/johnlamattina/2018/01/23/about-those-soaring-pharma-profits/#3f3456413f9d). And even conservative estimates of the value destroyed by such social failures amounts to trillions of dollars—in other words, trillions of reasons for businesses to develop new approaches to deliver new solutions.
As a result, some pharma industry leaders are searching for a constructive route forward. Some commit directly to “serving patients” (https://www.pharmavoice.com/newsreleases/new-biotechnology-pharmaceutical-industry-commitment-patients-public). Others are finding innovative ways to integrate for-profit activities with not-for-profit ones (such as B-Corps, mixed funding, and for-profit/not-for-profit organization partnerships) to deliver the existing-but-overlooked remedies (https://audacitytherapeutics.com/).
So you’re ‘dream’ is not a call in the wilderness. There are many who understand that call—and recognize that there are solid business reasons to execute on it. We can shift our cultural perspectives so more leaders recognize how it is possible, with creativity and strong leadership, to increasingly align business and social perspectives.
Most nations throughout human history have failed to deliver a social system that aligns business and social goals—and those failed nations’ citizens and businesses have suffered as a result. But, with almost every technology revolution, at least a handful of societies get it right.
Let’s get it right. We don’t have to call this utopian– we can call it necessary.
Rod Wallace, PhD (RodWallacePhD.com)”
The idea of “Original Social Responsibility” is an intriguing one. If I‘ve read correctly, it refers to a philosophy that the origins or basic nature of an individual, group, entity, company etc. inherently includes a sense of responsibility for an expansive understanding of one’s environment. The parameters of this idea include both concrete and abstract ideals, tangible and intangible.
Your post highlights that many companies might “greenwash” by promoting arbitrary concrete forms of social responsibility for public credibility, but that a company which understands itself would implement a systemic sense of social responsibility throughout its identity. This would be, as you say, an example of a company that fulfills its true mission by integrating profit and stakeholder success instead of pitting them against each other as is often the case.
I agree then that, in general, this would be the better way but managing it is another issue altogether.
Before the Constitution was ratified, a raging debate occurred between the Federalists and Anti-Federalists, and the argument then is the same as now: Can you force an entity to be virtuous? The Federalists, for the most part, contended that a system that allows good ideas to succeed (or only lose a little) by pitting them against all other ideas in a form of political particularism is the only possible solution. Give the good a fair chance. The Anti-Federalists believed that good ideas were founded in human rights and should therefore be made illegal to violate. The Federalists won initially when the Constitution was ratified, but the Anti-Federalists left their mark with the Bill of Rights.
The resulting fears and conclusions are thus:
1) If it is impossible to list a comprehensive set of standards, it is best to let ideals fall where they may, and the best will rise. Anything less than a comprehensive list will create a society akin to the Pharisees wherein those that follows the rules are good and those that don’t are bad whether or not the rules are actually indicative of goodness.
2) If there is no set of rules at all, many will successfully argue that good societal norms are unnecessary. A list is at least important to protect some of the good standards society knows in each moment to be true, otherwise all rights could be surreptitiously taken away.
We have seen this born out in politics since then. Many have called for the Constitution to be treated as a guideline and as necessarily incomplete. Others have called for “rights” to be taken only to be stopped because of the clarity of those rights in the document. It seems both statements above have remained true throughout America’s history.
How then will it be possible to solve this problem in business? How can a society impress upon its professionalism a way of life it has not decided for itself since its creation? What will make a company view caring about its environment in expansive ways as anything other than a list of tasks when:
1) There is no consensus on what those tasks even are.
2) The society that founds the professional discipline does not agree on much either.
I put these questions to your article as one who is hopeful it might be possible for “Original Social Responsibility” to succeed some day.
Dr. Rod Wallace’s approach to Corporate Social Responsibility (CSR) comes not a moment too soon as the world trembles in the wake of the Covid-19 pandemic. As he mentions, business owners often abandon any CSR that they think are only costly to the business during a recession. I think that Dr. Wallace is spot on when he says that this is a complete mistake. I would take it a step further that well established CSR programs can help keep economies afloat in a recession and perhaps deter them altogether.
In the movie It’s a Wonderful Life, the protagonist, George Bailey, keeps his small community afloat during the Great Depression by giving himself and his savings and loans business almost in its entirety to his employees and customers. Some economists criticize this movie for serving as socialist propaganda. I disagree. Bailey is fully invested in Christian based capitalism, or a capitalism devoted to society. George Bailey did exactly what Dr. Wallace believes should happen. Businesses should double down their efforts and mission to their shareholders and stakeholders. Much like start up businesses, larger businesses should “explore their core.”
“Explore your core” is a saying that keeps a young business rooted in its foundation, purpose, and goal. To use Dr. Wallace’s food industry example, McDonalds’ originally started out as a business that wanted to create a place where a family could go for a quick, simple meal of a burger, fries, and milkshake. McDonalds’ today would probably be unrecognizable to the founding brothers as the corporation has vastly extended their menu and is a large contributor to a major social issue: obesity. If companies like McDonalds’ keep their core in their CSR, then their simple mission naturally extends to a greater one. For example, if McDonalds’ original business practices and CSR perfectly reflected one another, we would see an establishment focused on the food experience of the family as well their ensuing health as a result of their food. We might see a simplification in their menu and healthier dietary initiatives.
McDonalds’ is but one example of corporate conglomerates that have CSR programs which do not seem to reflect. If more companies acted like the savings and loans company from It’s a Wonderful Life, you would see a shift in society and their priorities. Business would not be focused on amassing large amounts of wealth for themselves and shareholders, but look to improve the wealth of their communities and industries thereby increasing the standard of living for everyone around them.
Amazing post, thank you for sharing. From what I have learned Corporate Social Responsibility is widely used in a commercialized way as a tool to protect corporate image rather than an instrument to change business operation for the better. Even in Indonesia, firms engage in CSR because the government promises some tax cut to every company which does it. Also, to some degree, companies use CSR to get some leverage to the government. I agree that companies should return to their “Original From” to serve the society in an ethical way but the big question is how to balance profit maximization and business ethics. Also, the way in which corporations are supposed to serve the society effectively is still vague and biased.
Yulio Iqbal
Universitas Islam Indonesia