While studying economics at the University of Chicago, I developed the “theory of social tax.” In an ambitious attempt to join the ranks of scholars in the Chicago school of economics, I argued that the wealthier someone becomes, the more money we expect them to give away to support social causes. And, I’ll now like to revise this theory to include corporations.
If you’ve ever sipped a Starbucks coffee, then you’re familiar with social responsibility because the very notion of fair trade coffee stems from the concept. Today, consumers expect billion-dollar corporations to give money to social causes. And, one only needs to look as far as pink-ribbon branded products to see that companies are using their philanthropic activities for competitive advantage.
But, corporate responsibility wasn’t always a favorable idea. In 1970, the leader of the Chicago school of economics, Nobel laureate Milton Friedman, argued that the sole responsibility of a company was to make profits. And at that time, Friedman could point to two rising celebrities as evidence – Warren Buffet and Carl Icahn. But across the pond, a weather system was brewing.
By the early eighties, Anita Roddick of the UK, launched The Body Shop into the international spotlight. Her beauty company sought to empower women by rivaling the images of beauty created by industry giants such as L’Oreal and Revlon. (Truly, The Body Shop's philosophy serves as the predecessor to Dove's Real Beauty campaign.) I attribute two reasons to The Body Shop's success: (1) it was “green” before we even knew what “green” meant, and (2) it incorporated social responsibility from the beginning.
With the toiling economy, skeptics may rush in to say that social responsibility is a fad. But, it's not. To the credit of my fellow Gen Yers, we have made it clear that we’ll pay a little extra to support companies that use our money to do the right thing. For example, my friends buy clothes from American Apparel because they have fair labor practices and purchase groceries at Whole Foods because they support local farmers. And when the economy rebounds, companies that have strong social responsbility aims will emerge as category leaders.
To return to Milton Friedman, for the recod, I do agree that profit is important. But, I believe even stronger that ignoring social responsibility in order to increase profits is a grave mistake that Gen Yers won’t so easily forgive. Rather than thinking of social responsbility as a cost, I consider it an intangible investment. When done right, it adds to shareholder value. But when done wrong, it detracts.
What does social responsibility done right mean? And with so many social causes to choose, how is it possible to get it wrong? (Well, I’m glad you asked.)
Quite simply, social responsibility done right means it’s done strategically. In 2006, famed Harvard Business School professor Michael Porter along with managing director of FSG Social Impact Advisors Mark Kramer, wrote an instant classic praised by McKinsey consulting on how to make social responsibility a competitive advantage. And, their response did not involve creating a SKU of pink-colored products – gasp!
Porter and Kramer beautifully argued that social responsibility occurs on three levels: generic, value chain and competitive context. Basically, their framework helps executives understand that while a social cause may be important, it may not have a justifiable impact on the company to warrant an investment. To illustrate, Timberland supporting a music program is generic, whereas supporting Habitat for Humanity is within competitive context. Why? The music program is completely outside of what people associate with the company. On the other hand, partnering with an organization that builds homes aligns with Timberland’s core competence of outdoor wear.
In order to fit within competitive context (i.e. be strategic), then a company must understand its brand equity. But, wouldn’t companies in the same industry just end up supporting the same social causes? No. For evidence, Porter and Kramer highlighted the automobile industry. Volvo, for instance, stands for safety while Toyota represents environmental friendliness. Once companies understand their brand equity, then finding relevant, strategic social causes that offer differentiation with competitors will not seem a far-fetched notion.
Moving forward, as companies consider whom they want to pay their social tax, I hope they're more strategic about choosing social causes to support. To the best of my knowledge, the leading brand valuation companies – Interbrand and Millward Brown – currently don’t factor social responsibility into their methodology. But, like any investment, it definitely has a value. Until they figure out how to calculate the value of social taxes, then use the time to get smart about which causes your company support. And by getting smart, I mean get strategic.
- Kai D. Wright
Resources:
1. The Social Responsibility of Business is to Increase its Profits by Milton Friedman, NY Mag, 1970.
2. Strategy & Society by Michael Porter and Mark Kramer, HBR, 2006.
3. For a listing of the top 50 socially responsible companies, click here.
4. Millward Brown Top 100 Most Valuable Global Brands in BransZ 2009
5. Interbrand Best Global Brands, 2008
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