Flip flopping between the public and private sectors over the past decade granted me lots of time and food for thought on one of, if not the, most pressing question facing today’s business leaders: what, if any, is the social responsibility of companies? Historically, the multi-million-dollar question was, can businesses afford to pursue profits and social goals? This question is dead. Given changing consumer and investor preferences, it’s now clear that companies can’t afford not to.
The spirited debate between the “profits or progress” and “profits and progress” camps is hallmarked by Milton Friedman’s 1970 NYT article The Social Responsibility of Business is to Increase its Profits. He posits that companies that attempt to pursue social aims are, in essence, stealing from employees—in the form of lower wages, shareholders—in the form of lower stock prices, and customers—in the form of higher prices. Spoiler alert: times have changed.
I agree with Mr. Friedman that viable business must make money—after all, those that don’t will soon not be businesses—but changing employee, consumer, and investor preferences granted a much-needed nuance to the conversation on the balance between profits and progress. To get specific, here are just a few of many reasons why companies can no longer afford not to focus on social goals:
- Product viability – All physical products take some toll on the environment in their creation and shipping, and companies that aren’t thinking ahead about how they will continue to create their products as resources become more scarce and expensive will be dead in the water down the road. Take Levi’s, a leader in an industry renown for being particularly unfriendly to the environment and to workers. They flipped the script and not only use less water, dump fewer pollutants, and treat workers fairly, but open sourced their advancements to move the industry forward.
- Customer attraction and retention – According to Forbes, 66% of all consumers and 73% of millennials are willing to spend more if a product comes from a sustainable brand, and 81% of millennials expect their favorite companies to make public declarations of their corporate citizenship. Companies with a strong social mission can capture more consumers and keep them coming back.
- Finding and keeping talent – A company is only as good as the people behind it. By 2020, millennials and gen-Z will make up 50% of the workforce. 80% of them prefer to work for employers with sustainability practices in place and embedded in the corporate mission, but they also expect to job hop once every two years. In the not-so-distant future, meaningful social practices will be a must-have for companies that want to retain top talent and save themselves the $4,000 average price tag of filling an open position.
- Investor engagement – Larry Fink, CEO of the $6.3 trillion asset management firm BlackRock, fired a warning shot heard round the world when he sent an open letter to CEOs imploring them to fully grasp the social impact of their companies. His proclamation sent shock waves through Davos, and threw some necessary fuel onto the fire. And he’s not alone. A recent study found a 69% increase in investors who consider the environmental, social, and governance (ESG) implications of their investments relative to 2015, and 85% of these investors cite client demand as a driving force behind their ESG investments.
While it may have been true in the 1970’s that profits and progress were mutually exclusive, nearly fifty years of advancing technology, increasing consumer access to information, and spreading awareness about the steep long-term price of myopic profit seeking renders Friedman’s view of a zero-sum outdated. There is much work yet to be done, but we are in an era where social responsibility is no longer a “should” for companies, but a “must.”
This post originally appeared on LinkedIn as part of the CRB MBA course “Strategic & Sustainable Business Solutions” taught by CRB Executive Director, Robert Strand.
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Erin Casale is a full-time MBA student at the Berkeley Haas School of Business where’s she’s exploring how the private sector can best contribute to social progress. She’s particularly passionate about creating responsible, human-centered products and driving demand for them. On campus, Erin is involved in marketing for Women In Leadership and Net Impact. Prior to Haas, Erin worked in Accenture’s Management Consulting practice, then moved to Results for Development where she worked in their health practice and was a founding member of the Technology & Innovation team. Erin hails from Toledo, OH, and spent 8 years in D.C. before relocating to the Bay Area. Outside of school and work, you’ll find her on the slopes and trails, or enjoying a glass of wine with family and friends.