Wednesday, June 15, 2011

Hitting the CSR Jackpot

I got a flood of emails this morning from friends and business partners, all containing variations on the same subject line, "did you see the article in the Times this morning?" I clicked the links and glanced at the article's title: "To Be Good Citizens, Report Says, Companies Should Just Focus on Bottom Line." Uh oh, I thought, another jab, channeling Friedman, at our business model and my core beliefs about business. What will my team think? I thought about how I would cover up and downplay the news. I braced myself for concerned calls from our board and shareholders.

Fortunately, I was wrong. The article argues the same point that we have been making for years to our clients, namely that "traditional corporate social responsibility programs and corporate philanthropy aim primarily to produce a social benefit and that any profits that may materialize are byproducts." This is true. We recently surveyed over 100 companies and found that only 8 of them thought about profits when creating their social responsibility programs. I am constantly amazed by how sheepish our clients are about seeking out or stating clearly the financial benefits associated with their corporate responsibility initiatives. This is clearly a problem to fix.

If you read the Report about which the article was written, a short 14-pager that can be digested in about 5 minutes, you'll see three key points:

  • "Executives targeting profitability...will generate social benefits more efficiently and sustainably than those using typical strategies for CSR."

  • "Private benefits [i.e., profits] generated by investments that create social benefits can be very large, and so considering them may be as worthy of executives' time as other parts of their companies' operations."

  • "[Focus] on the single bottom line does not imply that companies' involvement in activities that create social benefits will diminish. On the contrary, we argue that these activities will become more common as companies make a case for them in terms of the single bottom line."

The authors correctly contend that, with respect to how they calculate social investments, most companies solve for Y, where Y equals social outcomes, when they should be solving for X, where X equals financial outcomes. Solving for X would allow these companies to make smarter and perhaps bigger social investments, thereby increasing Y.
The best example of a company that nails this proposition is Toms ( If you listen to Toms CEO and Founder, Blake Mycoskie, you'll hear an inspiring story about how he started the company with no business plan and only the desire to help others. On the surface, he's the opposite of the proverbial billiard player in Friedman's work, who makes "his shots as if he knew the complicated mathematical formulas that would give the optimal directions of travel." Listening to Mycoskie, you'd think he didn't care where the eight ball ended up. But semantics aside, here's a company that has generated enormous profit and shareholder value by making investments that create social benefits, exactly what the Times report advocates. Moreover, the company's soaring profitability is the critical factor in its ability to increase its investments in social benefits, as evidenced by their new commitment to cure lost vision in developing countries by selling great-looking sunglasses. If investments in social benefit don't create profit now or down the road, they should surely be scrapped; otherwise, they are detracting from a company's long-term viability. How can anyone's math refute this? Conversely, investments in social benefit that create enormous profit, like Toms, should be heralded as great business innovations and examples of corporate leadership for others to emulate.

What the authors of the report neglect to identify, in my opinion, is the profit multiplier effect that companies can create when they identify their own Toms opportunity. They touch briefly on the importance of aligning social mission with business model in a compelling way, when, for example, they say "a mining company would probably be better off training workers who could contribute to its supply chain than managing a primary school," but they don't go nearly far enough. The important observation for executives is that finding their Toms opportunity is about aligning mission and model in such a way as to make them profitable, exciting and inseparable. Like two sides of a coin, mission and model create value together. Without both, the value is dimished. When both are in perfect harmony, employees and customers sing your praises and customers and investors literally throw money at your company. I'd venture that today 99% of CSR programs do not accomplish this. Granted it may not always be easy to do -- what should Altria do? -- but when done right it can create much higher return for shareholders, because of the multiplier effect, than most any other investment the company can make.

When a company makes an investment that generates high social benefit, high revenue and high employee morale all at the same time, that's called hitting the jackpot. What the smartest CSR leaders should be seeking is to hit this jackpot by uncovering their Toms opportunities. If they do, they will not only generate huge profits and solve important social needs, but they may just find themselves in succession to become the next CEO. If you're interested in doing this, please let me know and we'll help.

Andy Mercy, CEO

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