28 December 2012

The Untapped Power of Corporations

Around this time last year, I posed the question of whether companies, in addition to producing bottom line results, should be expected to improve its surroundings, spearhead charitable efforts, and contribute to the general welfare of society.  While this topic is debatable, the power of the business community to actually do so is not.  Businesses have a much broader reach, resource base, and capability than other types of organizations to help address the world's problems.  So why then do they remain silent on most of the issues that matter?  Given business entities unique strengths, shouldn't it be imperative they have a seat at the table when it comes to influencing policies and solving society's problems?

If today's climate in Washington is how government is supposed to work, then clearly something is wrong.  Generally speaking, the business community has rightly stayed clear of politics.  They have long subscribed to the notion of the less they deal with lawmakers, the better off they are to be left alone to manage their own businesses.  Since enterprise leaders have a better handle of how issues affect people and how to craft possible solutions, this practice is a shame.  Amongst the fiscal cliff debacle, it is refreshing to see business leaders come together to form the Fix the Debt coalition.  A few, like Starbucks CEO Howard Schultz, have taken a stand to end lobbying and the influence of special interests in Washington.  Only time will tell if its too late, but at least some business leaders are stepping out of the boardrooms.  Don't get me wrong, corporate lobbying has no doubt created much of the political mess, but I think a broader effort among business could certainly help rise above the ineffective voices of partisan, agenda-based politicians.  

The same sense of indifference can be seen on the charitable front.  While individuals have been very active, large corporate outreach programs have typically been PR campaigns or a way to build employee morale.  As movements in small business such as social entrepreneurship continue to grow rapidly, large corporations have largely been absent from newer trends in giving.  Whether it be microfinance or businesslike operations like the Gates Foundation, capitalistic-based solutions have long been very effective ways in addressing the world's problems.  So its too bad that the largest concerns with the most business experience are on the sidelines.  Some newer companies like Google are aggressively building their foundations, but these are small efforts compared to the opportunity.  And in the long run, CEOs know that a healthy macro climate creates an environment for enterprises to thrive.  Just like a category leader has an obligation to grow the market, the same should be felt from corporations to affect societal change.

It's not all about giving back though; over 90% of CEOs interviewed in a recent Accenture survey linked better corporate performance to sustainability and community efforts.  Certainly with larger and more complex problems looming ahead, businesses see the need to become engaged in solutions to protect the markets in which they participate.  From a societal standpoint, the benefits of corporate involvement are clear - they have the resources, capital, independence, and track record to solve problems larger than what governments or even non-profits can.  It is also a largely untapped resource as corporations have been inwardly focused for so long.  A large resource reallocation is definitely not needed as the collective power of the business community is so great, but rather a mindset shift that focusing solely on a company's P&L may not be enough to yield the same success in the future.  Perhaps with Starbucks and Google in, we can finally get the Republicans and Democrats out. 


  1. A few follow-up comments/questions:

    1) There are many (Ayn Rand, Edward Conard) who would argue that P&L is the definition of success, that profits have a direct correlation with value delivered to the world at large, etc. Given that, why do you posit that a focus only on profit is not enough to yield success? I am of course not disparaging philanthropic pursuits or their importance, but rather suggesting that a major company like Intel, Procter and Gamble, or Berkshire Hathaway can be viewed as "successful" from a moral perspective (as well as a business perspective) independent of any corporate philanthropic endeavors they may have simply because their daily operations positively contribute to the functioning and development of the world.

    2) Disregarding the point above, from a purely pragmatic standpoint, what do you think is the best strategy for maximizing utility of every dollar spent on corporate philanthropic pursuits? There's a great number of worthy causes - how do you pick one?

    3) Do you think it's moral/ethical for company management to unilaterally decide to use company money for philanthropy rather than reinvesting it in the business, returning it to shareholders, or returning it to employees? I'm mostly curious, from the shareholder perspective, whether this is something you think should be voted on similar to how executive compensation sometimes is.

  2. Some good points you raise. I don't think its immoral at all for a business to focus solely on the p and l; I just don't see that myopic view to be sustainable. If major issues like chronic unemployment, education, and others are not addressed, these companies will not have robust markets to sell their products anyway. My point is that since they have the infrastructure and capability they should participate more.

    In terms of where, companies should leverage their strengths to be most effective. Exxon should look at environmental issues, Google should look at tech driven solutions' etc. They should also collaborate with nonprofit organizations for efficiency sake to not duplicate efforts.

    Your last point is very interesting. Certainly efforts large enough should seek shareholder or board approval, however I think these companies can probably achieve a great deal without huge resource or capital allocations. I also think if they integrate sustainability into there overall business practices, this effort could be seamless.