Over the next couple of weeks, we’ve asked our writers (and guests) to respond to the question” What is the Social Responsibility of Business?” Please comment away or contact us if you’d like to offer an opinion.
By Graham Russell
Earlier this week, I wrote about how the risks associated with not pursuing an authentic CSR/sustainability-based strategy have increased enormously in the 40 years. In 1970, Milton Friedman wrote his famous paper about how corporations should view their responsibility towards the society in which they operate: just make money for your shareholders! Here, we’ll take a look at the opportunity side of the CSR equation and think how Milton would have reacted to how big corporations are thinking and behaving these days.
For a start, there are many companies that didn’t even exist in 1970 whose very existence has been driven by increasing demands from society to deliver products and services that satisfy the need for a more sustainable and responsible global economy. Whether or not you believe in the health and other alleged benefits of organic food products, lots of folks do. Companies like Whole Foods Market and WhiteWave Foods have been created to meet their demands. The same can be said for apparel companies like Patagonia and green cleaning and hygiene care product maker Seventh Generation. I don’t think Milton would argue that the basis on which these companies have been built is somehow contrary to his thinking about how capitalism should work. The demand is out there – make money by meeting it!
Take a couple of legacy companies that were very much alive and kicking in Milton’s heyday. Both GE and IBM have very consciously (and very visibly) revamped their corporate strategies to focus on developing new products and services that address what they see as the resource constraints and environmental problems the world is already struggling with. In 2011 GE’s Ecomagination strategy delivered about 15% of the company’s total revenues, or $21 billion. The innovations stimulated by this inspiring initiative cover a vast range of new products and services from energy-efficient locomotives to leading-edge water treatment technologies, LED lighting systems and products to manage smart grids.
Those of you who watched the U.S. Open Tennis men’s final recently were treated to a series of commercials from IBM outlining some of the initiatives the company is developing under its Smarter Planet strategy. Once again, the range of new data management products and services this company is delivering to address global sustainability challenges is startling and it comes as no surprise that revenues from the Smarter Planet initiative increased by 20% in the first half of the company’s fiscal 2012.
And what about the investment community? How do they look at the opportunities created by sustainability-based thinking? There is increasing evidence that the shares of companies with vigorous and highly visible CSR or sustainability strategies perform better than those of companies that don’t – see Harvard Study summarized here. But the average analyst on Wall Street pays little or no attention to sustainability-related issues until there’s a disaster like the BP oil spill or the Massey Energy Upper Big Branch mine disaster. Then they berate the company’s management and drive the share price through the floor for a few months before returning to thinking as usual. In short, Wall Street reacts to corporate CSR shortcomings but gives no credit for having a vigorous and authentic sustainability strategy.
Even this, however, is changing. Kohlberg, Kravis, Roberts, one of the largest, most aggressive and successful private equity firms in the world, has signed on to the UN Principles for Responsible Investing and is now in the process of implementing a Green Portfolio Program which mandates that all of their 70+ companies across the globe will identify opportunities for cost savings, risk reduction and new products and services associated with reducing environmental impact and addressing global sustainability challenges. If KKR sees the opportunity, you have to think the rest of the investor community will eventually wake up.
The point is that more and more companies are seeing huge upside opportunity through implementing sustainability-based strategies that meet demands from society for socially and environmentally responsible products, services and behaviors, and to address global challenges. Few if any of these demands and challenges were on the world’s radar screen in 1972. I bet that if Milton could read Thomas’ book Hot, Flat & Crowded and pop back down for a two hour panel discussion on CSR and sustainability, the two of them would find a lot more to agree upon than to fight about!
Graham Russell is Founder & Principal at Trupoint Advisors, which helps companies achieve strategic success through sustainable business initiatives. www.trupointadvisors.com. Russell writes and speaks on the subject of sustainable business and teaches sustainability in theUniversity ofColorado Denver MBA program.