09 December 2011

Should Companies Be 'Good'?

I've written on several occasions about good companies(including Starbucks) and their leaders that have both built successful businesses and  spearheaded creative initiatives in the social arena.   This month, CEO Howard Schultz was awarded Fortune's Businessperson of the Year in part because of Starbucks' successful turnaround of the company but also because of his off the field contributions - from fighting Washington politics to building inner city programs.  There aren't too many examples of this kind of bilateral success in large companies; but is it their place?  Corporations are built with the sole purpose of maximizing shareholder value; Do companies have an obligation to improve society?

The argument is that for profit concerns should be focused on just that.  Boards and Management teams have very specific metrics in which they are measured - generally tied to sales, profits and returns.  While no one will argue that a certain level of ethical standards should be employed,  the notion of adding "higher purpose" objectives may cloud the company's vision and execution plan.  Moreover, it may lead it to choices down the road which no company would want to face (i.e. good for company vs. good for society). Corporations should focus on building wealth which will in turn empower their shareholders to thrive in philanthropic arenas;  Bill Gates is the classic example, right ?

I personally think its the wrong perspective.  First, I think companies that are so myopic to only their interests often get blindsided by changes in the market around them.  I think taking a look at the big picture, for example the impact of operations on its local footprint, allows for a broader vision that will help the company adapt to the fast pace changes of today's climate. Second, it can serve to build employee morale and social capital for the company.  Its hard to hate Starbucks when they buy fair trade beans and treat their employees right.  While some of these positives are hard to measure, I think these can be viewed as long-term investment in the business.  Maximizing profit and helping the world are not mutually exclusive.  It just takes a little more effort.

Companies have resources, people, and connections to make society better.  Given their reach and their business savvy, they are better positioned to do so efficiently and effectively compared to governments and individuals.  Given tax havens and huge benefits from global sourcing,  I think there are plenty of built-in subsidies that allow companies to do so without adversely impacting their bottom line.  Nonprofits definitely have a place, but don't have nearly the scope that corporations do.  You see time and time again that capitalistic solutions, such as microfinance and for-profit management techniques, achieve better results than traditional philanthropic models.

Its frankly a shame that you dont see more Starbucks in the big company world.  I like SalesForce's 1/1/1 model;  I have written about some other innovations in the tech space. But these are few and far between.  I wonder how many of the Fortune 500 can truly build sustainable companies while focusing solely on their own interests.  But more importantly, corporations are uniquely positioned to solve the world's problems.  If it were just money that was needed, I might think differently.  So as we sip our $4 Christmas flavored lattes this season, let's tip our hats to the companies that have achieved on both the profit and non-profit fronts.

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