A new breed of businesses that balance economic, social and ecological performance is emerging in the United States. Some analysts see the trend toward corporate social responsibility as the future of business in America. Skeptics say it is more about making money than doing good.
Social entrepreneurship is not a new concept. Companies like Vermont-based ice cream maker Ben & Jerry's have been promoting social and environmental programs for decades while turning in a profit. Proceeds from a recent music festival sponsored by the company, for example, will be used to build solar panels to improve the energy efficiency of the company's factories in India. And U.S. clothes retailer, Gap is donating half of the profits from one of its product lines to The Global Fund to Fight AIDS, Tuberculosis and Malaria.
James Post of Boston University's School of Management says the concept of corporate social responsibility that transcends economic gain is not new.
"It can be found in the writings of economists even as early as 1915, 1916. But it gets reinterpreted in each era. And so what we are seeing is a reinterpretation because of some powerful trends that have transformed business," says Post. "So globalization, for example, makes us aware that there are people working in places around the world for very low wages and under very poor working conditions. Those become issues that companies that are selling in other industrialized economies are now taking into account. All of this highlights the interdependence that's going on in the modern economy."
Why be Socially Responsible?
Some analysts say many firms have changed their philanthropic interests from donating money to charity to a stewardship role that integrates social and environmental wellbeing into their mission statements and financial goals, or bottom line. This shift, says Boston University's James Post, often transcends profit.
"What they [i.e., companies] are doing is they are inventing the bottom line in a way that companies refer to as the 'Triple Bottom Line,' where they take careful measurement of their economic performance and their environmental performance - - what is the impact of their business on the air and the water, the land, biodiversity and so forth, and their community impact? So the triple bottom line is economic, environmental and community impacts that a company has. That's the bottom line that defines how sustainable a company will be over the long-term," says Post.
Other experts argue that many companies are more interested in using socially responsible programs to make money or improve their image than in doing good. For The Heritage Foundation's labor expert James Sherk, it all comes down to promoting product loyalty.
"You can take a look at a company like U.S. retailer Walmart, which is trying to improve its public image in part by being an environmentally friendly corporation. They are conserving on their energy use. They are using less packaging. These are things that save them money. But they also give them good public relations. Your customers will buy your goods not just because they like the product but also because they like the image that is associated with that,” says Sherk. “Or you can take a look at a company like Whole Foods Market, a retailer of natural and organic foods, who have been socially responsible, or Ben & Jerry's. What they are doing is brand marketing. It's not that they are doing this out of the goodness of their heart, but that it's a good business decision for many companies to try and market themselves in this fashion."
Some analysts say companies are sometimes driven toward social responsibility by changing consumer habits and concerns over increased government regulation as the debate over climate change intensifies.
Meg Voorhes of Institutional Shareholders' Services in Washington, which advises firms on corporate governance, says shareholder activists are also pressing companies to tackle the issues they care about.
"We've seen the number of shareholder proposals on environmental and social issues, at U.S. companies anyway, inching up. It's been a generally upward trend over the last few years. But even behind the scenes, I get the sense that there is more shareholder communication and discussion with companies,” says Voorhes. “Certainly a lot of the leading institutional investors, the largest pension funds, are contacting company management, discussing important issues with them behind the scenes.”
Future Trends?
According to the Giving USA Foundation, which tracks charitable donations, more than one-thousand businesses issue annual "corporate responsibility reports" to reflect their commitment to positive social change. There were no reports a decade ago. Some firms, like U.S. outdoors clothier Timberland, go a step further by giving interested employees paid leave to perform volunteer community service.
Boston University's James Post says a new generation of college graduates is feeding this trend.
"To be sure, they would like high salaries. They would like to live a good life. They would like to have the benefits that come with being with a successful company. But they also want to make a difference and, in a certain sense, they are shaping a new kind of company, a company that is often defined as a 'socially entrepreneurial company.' A company where they bring the tools of economic thinking to bear on the biggest and most important problems that society faces," says Post.
Not just for profit
Many analysts say more companies are realizing that making a difference and making a profit are not mutually exclusive. The personal care products company The Body Shop, for example, buys millions of dollars of natural ingredients from disadvantaged communities across the world each year, promoting local businesses as well as increasing The Body Shop's profits.
Management and sociology professor Anthony Buono of Bentley College in Massachusetts expects this type of business model to flourish.
"We will see this becoming more and more commonplace to the point where we might not even be talking about corporate social responsibility within the next decade. We will simply be talking about what is standard business practice. And standard business practice, hopefully, will be engaging a much broader array of stakeholders rather than simply focusing on shareholders," says Buono.
Some analysts suggest that the current corporate interest in social responsibility may be a passing fad. Others say it may shape America's future corporation.