In 1970, economist Milton Friedman wrote a highly controversial article for The New York Times, “The Social Responsibility of Business is to Increase its Profits.”
"There is one and only one social responsibility of business," he wrote, "to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." Friedman went so far as to label business executives with a corporate social-responsibility mission as socialists and hypocrites.
Friedman lived in a different world from today, whem after the Great Recession, Occupy Wall Street, record long-term unemployment and serious cutbacks of government support for social programs, the rules of the game have changed.
In the age of social media, access to information has been democratized and the consumer has been empowered. Through peer-to-peer reviews, instant video uploads and platforms such as WikiLeaks, businesses can no longer commit their resources entirely to the pursuit of profits.
Today’s consumer is not the consumer of the 1970s but is someone rather who expects more than just a product or service. He or she expects businesses to reinvest in the communities where they have earned a profit.
Consumers expect businesses to behave as good corporate citizens, hire from within the community, provide living wages and prevent environmental damage. Any business operating today under Friedman’s doctrine of profit maximization would be tarred, feathered, video recorded and ridiculed on Facebook, YouTube and Instagram.
Entrepreneurs, recognizing the need to maintain a strong brand reputation through corporate social responsibility, are responding.
Recently I had the opportunity to interview on my radio show Money Talk Peter J. Riggio, the CEO of Vancouver, Wash.-based Swipe4TheKids. His company poses a simple question to its target market, “What if, by making one simple change, you could change the world around you?”
Swipe4theKids, which is owned by Pomeroy Equitable Solutions, defines its mission as generating "sustainable, long term revenue streams funding youth health, safety, music, the arts, sports, and other community programs." It further promises, "As a socially responsible and ethical company, we will be watched and emulated as a corporate model of success and philanthropy.”
The mission of Swipe4theKids would hardly be considered unique within the nonprofit community. But Swipe4theKids is not a nonprofit. As a full-service merchant processor, it operates in one of the most competitive business environments, an area where deals are made and lost on fractions of a cent.
The company provides businesses with the ability to accept credit cards. The company makes money by charging merchants a small fee every time a credit card is accepted for payment by its business customers.
Recognizing its competitive environment and having a strong understanding of the power of corporate social responsibility, Swipe4TheKids made the strategic decision to donate to local charities about half of the revenue it generates.
Apart from attracting startup businesses as customers, Swipe4the Kids is also successful at attracting new clients by matching or beating the competition’s pricing and then making contributions to local causes in the name of the business. The public-relations benefit accrued to the business comes at no additional expense since Swipe4TheKids makes the contribution from its revenue -- not the business owner’s.
Swipe4theKids’ business model lets it get by with a smaller business-development staff than its competitors. Rather than maintain a large national sales force, Swipe4theKids relies on the nonprofits it benefits to recruit other businesses with the expectation that the referred companies will then route their contributions to the nonprofit. Referrals also come from existing business clients that encourage neighboring businesses to take advantage of the program and the positive public-relations effect that comes with being a Swipe4theKids customer.
“Each company's culture and skills position it to establish unique ways to support sustainable communities through initiatives that are intrinsic to a company's brand,” Ian Lifshitz, North American director of sustainability and stakeholder relations at Asia Pulp and Paper Group, wrote in regard to his company's efforts. “This is your company's opportunity to get local or global or creative or all of the above.”
Consistent with Lifshitz' message, Men’s Wearhouse, a national men’s apparel retailer, has coordinated for the last seven years a July clothing drive at its stores. Men’s Wearhouse calls its annual clothing drive the National Suit Drive.
In an effort to encourage donations, the retailer provides 50 percent discount certificates. This incentive not only encourages donations but also promotes new sales. Donated apparel is distributed to nonprofits across the country that provide job-ready skills and training to unemployed and underemployed men.
In early August, about a week after the end of its National Suit Drive, a Men’s Wearhouse's public relations representative Susan Guth said that the organization had exceeded its goal of 150,000 pieces of business attire more than 35 percent. The result was that Men’s Wearhouse plans to distribute to 180 local charities across America more than 200,000 pieces of clothing.
While the public-relations benefit that will result from this effort will be substantial, of equal importance is the thousands of sales that will occur as a result of the redemption of discount certificates along with the sales to those sympathetic to the cause.
According to a 2012 Harvard Business School Working Paper by Kash Rangan, Lisa A. Chase and Sohel Karim, “civil society advocates question corporations’ fundamental motivations for CSR, asserting that corporate programs to fund social and environmental programs are nothing more than public relations campaigns to boost their brand reputations, often disproportionately to the effort itself. This dismissal of CSR resides in a fundamental distrust of a corporation’s legitimate intentions to do anything more than increase its profits.” This sentiment is consistent with the outdated perspective on corporate social responsibility in Friedman’s New York Times article.
But the reality is that the business landscape today is much more complex than it was in 1970. Stakeholders are no longer strictly shareholders. Today, in order to maximize profits, businesses must consider a social-responsibility strategy. Consumers expect more of the business community. Through social media, consumers have the tools and the power to reward the good and punish the bad.
According to Rangan, Chase and Karim, “the question for corporations is not whether to engage in CSR, but what the best way forward is for crafting CSR programs that reflect a company’s business values, while addressing social, humanitarian and environmental challenges.”
Many will continue to argue that businesses that employ social responsibility strategies are merely doing so for public-relations purposes. And there is no doubt that such programs provide a public-relations benefit. But the evidence is clear: Businesses can do good business by doing good.