First, Make Money. Also, Do Good. http://www.nytimes.com/2011/08/14/business/shared-value-gains-in-corporate-responsibility-efforts.html?pagewanted=all&_r=0

By STEVE LOHR Published: August 13, 2011

CORPORATE social responsibility efforts have always struck me as the modern equivalent of John D. Rockefeller handing out dimes to the common folk. They may be well-intentioned, but they often seem like small gestures at the margins of what companies are really trying to do: make money.

Enlarge This Image

Craig LaRotonda

Multimedia

Weekend Business

As well they should, an argument most famously made by the Nobel laureate Milton Friedman decades ago. He called social responsibility programs “hypocritical window-dressing” in an article he wrote for The New York Times Magazine in 1970, titled “The Social Responsibility of Business Is to Increase Its Profits.”

But Michael E. Porter, a Harvard Business School professor, may have an answer to the Friedman principle. Mr. Porter is best-known for his original ideas about corporate strategy and the economic competition among nations and regions. Recently, however, he has been promoting a concept he calls “shared value.”

Earlier this year, Mr. Porter and Mark R. Kramer, a consultant and a senior fellow in the corporate social responsibility program at the Kennedy School of Government at Harvard, laid out their case in a lengthy article in the Harvard Business Review, “Creating Shared Value: How to Reinvent Capitalism — and Unleash a Wave of Innovation and Growth.” Since then, Mr. Porter and Mr. Kramer have been championing the shared-value thesis in conferences, meetings with corporate leaders, and even a conversation with White House advisers.

Shared value is an elaboration of the notion of corporate self-interest — greed, if you will. The idea that companies can do well by doing good is certainly not new. It is an appealing proposition that over the years has been called “triple bottom line” (people, planet, profit), “impact investing” and “sustainability” — all describing corporate initiatives that address social concerns including environmental pollution, natural-resource depletion, public health and the needs of the poor.

The shared-value concept builds on those ideas, but it emphasizes profit-making not just as a possibility but as a priority. Shared value, Mr. Porter says, points toward “a more sophisticated form of capitalism,” in which “the ability to address societal issues is integral to profit maximization instead of treated as outside the profit model.”

Social problems are looming market opportunities, according to Mr. Porter and Mr. Kramer. They note that while government programs and philanthropy have a place — beyond dimes, Mr. Rockefeller created a path-breaking foundation — so, increasingly, does capitalism.

The shared-value concept is not a moral stance, they add, and companies will still behave in their self-interest in ways that draw criticism, like aggressive tax avoidance and lobbying for less regulation. “This is not about companies being good or bad,” Mr. Kramer says. “It’s about galvanizing companies to exploit the market in addressing social problems.”

The pair point to promising signs that more and more companies are pursuing market strategies that fit the shared-value model.

Several years ago, executives at General Electric began looking across its portfolio of industrial and consumer businesses, eyeing ways to apply new technology to reduce energy consumption. They were prompted by corporate customers voicing concerns about rising electrical and fuel costs, and by governments pushing for curbs on carbon emissions.

The result was G.E.’s “ecomagination” program, a business plan as well as a marketing campaign. In recent years, the company has invested heavily in technology to lower its products’ energy consumption, and the use of water and other resources in manufacturing.

To count in the program, a product must deliver a significant energy savings or environmental benefit over previous designs. G.E. hired an outside environmental consulting firm, GreenOrder, to help in measuring performance. To date, more than 100 G.E. products have qualified, from jet engines to water filtration equipment to light bulbs. In 2010, such products generated sales of $18 billion, up from $10 billion in 2005, when the program began.

“We did it from a business standpoint from Day 1,” says Jeffrey R. Immelt, G.E.’s chief executive. “It was never about corporate social responsibility.”

Technology has opened the door to markets that have shared-value characteristics. For decades, I.B.M. sold its computers, software and services to city governments around the world, though mainly for back-office chores like managing payrolls. But the Internet, the Web, electronic sensors and steady advances in computing have helped transform I.B.M.’s role, as it now helps cities track and analyze all kinds of data to improve services.

“We’ve moved from the back office to the core mission of cities — managing traffic, monitoring public health, optimizing water use and crime-fighting,” says Jon C. Iwata, a senior vice president.

I.B.M. is now working with about 2,000 cities worldwide as part of its “Smarter Cities” business, which began three years ago. One advanced project is in the sprawling city of Rio de Janeiro, where I.B.M. is designing a computerized command center. It is intended to pull data from dozens of city agencies, as well as weather stations and webcams. One assignment is to closely track heavy rainfall and to predict its impact — where flooding might occur, how traffic should be rerouted, and what neighborhoods may need to be evacuated. The goal is to predict and prepare for the kind of mudslides and floods that killed hundreds of people in April 2010 and left 15,000 homeless.

THE evolution of low-cost Internet and mobile phone technology has also let Intuit pursue opportunities with shared-value attributes. The company offers free online income-tax preparation software and filing services for lower-income households (now earning $31,000 or less). Since 1999, nearly 13 million people have taken advantage of the service.

The cost is relatively inexpensive for Intuit, as the service exploits the efficiency of online distribution; the charge for paying customers is $20 to $50. And the program blurs the line between charity and marketing, because millions of people who are sampling the company’s product, may well become paying customers as their incomes rise.

In India, Intuit has begun offering a free information service for farmers that can be accessed on any cellphone. Part-time workers check crop prices at local markets and send the information to Intuit. The company then relays the latest, local price quotations in text messages to subscribing farmers. As a result, the farmers can make smarter decisions about when and where to sell their produce.

The service in India began last year, and 300,000 farmers now use it. In follow-up surveys, farmers report that their earnings are up 25 percent, says Scott Cook, the founder of Intuit and chairman of the executive committee. The company, he adds, is testing ways to make money off the service, perhaps with text ads for simple tractors and fertilizers.

Mr. Cook points to other new business forays that are part of the same strategy. One is an Intuit health debit card for American small businesses that want to pay for some of their employees’ medical care but cannot afford conventional health insurance.

“We look for places we can use our strengths as a company to help solve big problems,” he says. “You can call that shared value if you like. But I look at it as the business we’re in.”

A version of this article appeared in print on August 14, 2011, on page BU3 of the New York edition with the headline: First,

Make Money. Also, Do Good..

Milton Friedman Was Wrong About Corporate Social Responsibility

http://www.huffingtonpost.com/john-friedman/milton-friedman-was-wrong_b_3417866.html

John Friedman Become a fan  

Helping companies live their values and tell their authentic stories • Email

• •

Posted: 06/12/2013 8:57 am EDT Updated: 08/12/2013 5:12 am EDT

o  

o Share30 o Tweet55 o 13 o Email32 o Comment26 o o o o

It happens very often when I speak about sustainability and corporate responsibility, and it happened again last week. Someone will ask me about Milton Friedman's famous quote: "There is one and only one social responsibility of business -- to increase its profits."

In fact they are misquoting and simplifying just one part of Mr. Friedman's more thanfour decades' old statement. The complete statement is rather broader and brings in a few elements of what is today considered to be integral parts of corporate responsibility -- ethics and integrity.

"There is one and only one social responsibility of business -- to use it 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." -Milton Friedman, New York Times Magazine,September 1970 By leaving out the second half of the statement the shortened quote allows for broad range of latitude that Friedman surely* did not mean. Specifically when he speaks to avoiding the deception or fraud (presumably of customers, employees, suppliers, shareholders and a host of other stakeholders who's interests would not be met by those actions).

Mr. Friedman argues that a corporation, unlike a person, cannot have responsibility. No one would engage in a business contract with a corporation if they thought for one minute that a corporation was not responsible to pay its bills, for example. So clearly, therefore, a corporation can have legal, but also moral responsibilities.

He also uses what to me is the key phrase 'as long as it stays within the rules of the game' while narrowly defining that in legal terms. But what about the rules of the game that are not coded into law? There are other rules that businesses must adhere to if they wish to be successful; such as the obvious rules of the marketplace including supply and demand. In addition, as we have seen with the proliferation of 'new' technologies, the law usually follows advancements in technology and thinking. But the fundamental principle of responsibility often precedes the legal cases being decided because unless or until enough people think something should be made illegal, it won't be made illegal.

So, if one accepts that 1) companies are in fact capable of having responsibilities and that 2) they must follow rules of the game beyond those codified into law (particularly concerns that cross borders and therefore are subject to multiple and sometimes contradictory statutes) the basic premises behind the argument Mr. Friedman made in the fall of 1970 collapse.

Conforming within acceptable legal limits may keep them out of court, but companies know well that holding themselves accountable to a higher standard will keep them in good stead with their customers, employees, shareholders, suppliers, regulators and communities.

Any business, if its wants to be sustained over time, must maximize its profits but do so in a manner that meets the needs of the stakeholders that allow it to remain viable. When those needs change, businesses have a responsibility to adapt their behaviors accordingly if it wishes to survive. That is the piece that Mr. Friedman's argument missed. The rules of the game have changed in fundamental ways -- and people today expect (and demand) more of business than simply that they maximize their profits without coming to grief by some violation of law. Consumers want and expect attributes from what they buy -- quality, safety, value - depending of course on the price they pay. Employees want more than a paycheck. Communities want the company to be a good corporate citizen and hire from the community, provide employees with a living wage, not pollute and to pay its fair share of taxes and support the community (even if each of these things are not legally required). As much as people claim that shareholders are only interested in maximizing short term returns, recent stories that a decent percentage of Walmart shareholders voted against the CEO and other leaders because of their handling of bribery charges and working conditions in factories in the company's supply chain demonstrate that this too is evolving. Regulators may only require companies to toe the legal line, but things like sloppy paperwork and cutting it too close to the line (when it comes to things like emissions) result in more frequent and deeper investigations, costing the company time and money. Having robust systems in place that ensure a margin of safety also result in less costly enforcement actions. Communities often want companies to do more than what is required; leading to a host of strategic philanthropy efforts that are part of, but do not by themselves constitute a responsible corporation, especially if they are seen as compensating for a business model or culture that is less desirable. And so, I think it is time that we take (the other) Mr. Friedman's argument in historical context and recognize it as a relic of a past and perhaps simpler time.

Note: The author is no relation to the economist Milton Friedman and has no knowledge of or insights into Mr. Friedman's thoughts other than what is in the public record. Follow John Friedman on Twitter: www.twitter.com/JohnFriedman

MORE: Wal Mart SustainabilityCorporate Social ResponsibilityCorporate ResponsibilityMilton Friedman

This Blogger's Books and Other Items from...