A friend sent me an article the other day about how us CEOs were recently lamenting the fact that investors don't seem to be interested in corporate efforts to do social good and philanthropy. (Click on the title above to see the article) The context for these comments was a conference by an organization called: The Committee Encouraging Corporate Philanthropy (CECP). For those of you who have read my writings before you might initially surmise that I'd opine on why investors are missing the point regarding how doing social good is good for business. But in fact, based on the way these ideas are being presented by CECP and many of these executives I'd agree with the sentiment they're experiencing from investors. Investors are in the business of making money. Most of them are also interested in living in a just and functioning society. And I'll bet that some of them are even proponents of Philanthropy. But philanthropy and business that creates social good are two entirely different things. One is about doing good for the sake of doing good. The other is about creating a business that respects its place in society as a social entity and operates in a fashion such that its entire ecosystem is sustained. That ecosystem must include investors and you must show those investors that you will provide them returns consistent with the money they have at risk in addition to honoring your place in and effect on society.
Oddly enough some of the executives at the meeting were indeed focused how efforts to do social good must become a profitable part of their core businesses. But as one of my partners often says; Language matters! In this case the language of an outdated paradigm, one that suggests you can either do well or do good, persists in the lexicon of even those executives who understand that we have shifted to an environment where you must do good in order to do well. If executives continue to use outdated concepts and phrases to describe what's happening in the world, the idea that companies can be instruments of good to society while also creating outsized returns will not gain traction because it will be mired in the old paradigms of environmentalism and "giving back". If you operate your business based on the notion that you are an instrument of service to society, even as you make money, you're not likely to have "taken" something in the first place. No reason to "give back" if you've been adding multiple levels of value (not just financial) all along.
It's amazing to me that after reading Porter's article on Creating Shared Value, we still have executives talking about philanthropy in terms of strategic and competitive advantage. Yes you can give money away in ways that might support your strategy, but those opportunities are minuscule compared to the good you can do and returns you can get by operating your core business in a way that honors the humanity of your stakeholders. 5 or 6 years ago in a "debate" put forth by Reason Magazine (I think that's where it was) the topic was posed as a contrast between Ed Freeman (Academic Director, Business Roundtable Institute for Corporate Ethics at The University of Virgina) who advocates managing for stakeholders and Milton Friedman who famously quoted about making a profit being the only social responsibility of business in the 70's. Ed addressed this then and the same is true now: CSR becomes an outdated and useless term (and therefore much less prone to attack by shareholders and other opposition) if we frame the idea as managing for stakeholders (long-term) vs. managing for shareholders, which has been co-opted to justify a short-term, "quarterly earnings above all" mindset. Yes, when the article says: "Corporate philanthropy is no longer just writing a check for charity - more executives are making efforts to do social good part a profitable part of their core business." its apparent that some CEOs understand what I'm saying here but they have such an outdated mindset that its impossible for them to get even their enlightened message across. If "Social good" is a profitable part of their core business can it or should it still be called philanthropy? Or should we just do away with the whole CSR infrastructure and operate our businesses so that we constantly honor the humanity of employees, customers, suppliers, partners and our local communities where we do business? This is not to say we should eliminate philanthropy. We will always care about things that bring us joy, beauty, and areas where we have no business interest but feel compelled to help. That's fine and its the right thing to do. That work though should be separated from operating your business as a tool for the betterment of society. That's not philanthropy. It's humanity and simply the way business ought to be approached. The Sustainability index idea (which was posed by some executives at the conference) is an idea that has come and gone if it is focused on the traditional definition of sustainability. We've not been able to prove that investment returns or corporate performance can be enhanced through the environmentally based definition of sustainable. If however they mean investing in businesses that sustain themselves, their employees and their employees families, their communities, their suppliers, their partners, their governments and their shareholders, well then that is an index that can and will be built and will indeed generate alpha. Investors are educated only when you can show them that your approach is good for you AND good for them. Some of the CEOs there wondered about the metrics for creating such an index. I contend that once you understand the right question to ask, defining the metrics is not difficult at all. Reporting standards for corporate philanthropy are useless in that they don't give investors any insight into risk or potential returns. What would give investors insight is if they new what types of cultural organization they were investing in; this would tell them about the potential for financial shenanigans, how engaged employees were and thus the likelihood that they would give discretionary effort, insight into the strength of the customer asset for these companies (emotionally engaged customers are loyal and more profitable), how they deal with human rights issues in their supply chain and how they work to sustain their local communities. Peter Drucker addressed this long ago when he separated social responsibilities into "social impacts," or what business does to society and social problems, or what business can do for society. My basic claim is that those impacts need to be eliminated to the greatest extent possible and the problems need to be addressed humanely, and companies that operate from a stakeholder mindset are more likely to find ways to execute in this manner. I recently read an example in an Insead article of how this works that describes my feelings pretty well: "Fast food companies certainly appear to have a responsibility to act to eliminate the negative social impacts evident in their contributions to obesity in children. In contrast, the pharmaceutical companies dealing with requests to give away life-saving drugs to all that need them are responding to what Drucker would term social problems rather than social impacts. They are not responsible for the limited healthcare budgets of developing countries that preclude purchase of drugs at developed country prices, but they might choose to act on the issue of access to essential medicines nonetheless."
The main take away: Identify and address, if not eliminate undesirable social impacts of business activities and if they cannot be turned into profitable business opportunities, seek a regulatory solution (industry self-regulation or government regulation) that creates an optimal trade-off for all parties. Social problems can also be sources of opportunities as described in "The Fortune at the Bottom of the Pyramid" by the late C.K. Prahalad. But not all of them. And that's where philanthropy comes in.
If CEOs want to contribute to this discussion they should simply be more transparent about their ability to, and history of, making these types of decisions in this manner.
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