Dec 12, 2013 | Leadership, Purpose

 “The social responsibility of business is to increase its profits.” That statement was part of an article written by economist Milton Friedman for The New York Times Magazine in September 1970. In the article, Friedman argued that the more profits that were returned to shareholders, the more money shareholders could use to do social good. 

Friedman’s position was plausible in the 1970’s.  The world’s resources seemed unlimited.  Short-term performance was valued over long-term value creation.  Foreign countries were mysterious and remote.  But, in the 40 years since that publication, we’ve learned that our resources are indeed limited, short-term thinking is unsustainable, and our global neighbors share our desire to be treated with dignity and respect.  Today’s savvy leaders understand that their companies do not exist to create value strictly for their shareholders. They also exist to create value for their customers, and ultimately for society.

Harvard professor and former Medtronic CEO Bill George agreed with this position in a recent interview in which he explained that the market’s obsession with short-term performance ultimately harms investors, companies, and consumers.   George stated that businesses that forget their long-term obligations “have no right to exist, no matter how much short-term shareholder value they create.”

Leaders who are in tune with the shift toward long-term value creation understand that corporate social responsibility (CSR) is a good business strategy.  Here are six ways in which businesses with a strong commitment to CSR have a competitive advantage:

  1. Consumers will buy.  Consumers prefer companies that make a positive impact on the world. 83% of U.S. consumers want more of the products and services they use to benefit causes and 62% of global consumers will switch to brands that work with good causes.  (2010 Cone Causes Evolution Study)
  2. Attract and retain talent.  Kevin Jones of Good Capital calls this “meaning premium.” People want to work for a company that allows them to contribute to a greater purpose and are willing to be paid less for the opportunity. When employees are part of a larger mission and feel their contributions make an impact in the world. They’re engaged, proud and motivated.
  3. Innovation. More companies like Nike, GE and Interface are using sustainability to drive innovation. Seventeen years ago, the late Ray Anderson, who served as Interface’s CEO, committed to becoming a zero waste company by 2020. Since then, Interface has eliminated hundreds of millions of dollars in resource and waste disposal costs, increased sales by more than one billion dollars and changed the way the entire carpet industry does business.
  4. Influence. Your company’s initiatives will be modeled as more companies realize the benefits of having a social mission.
  5. Lower marketing costs.  Your mission will help your marketing. The fact that Newman’s Own donates 100% of profits to charity is a story that sticks, intrigues, and encourages participation through purchase.
  6. Future-bound company.  Successful companies that others evangelize and model represent more than just a product or service. They represent a philosophy, culture or experience. When you channel this back into your business, you’ve made your competitive edge that much edgier.

The social responsibility of business is more than returning profits to shareholders. Having a social mission is a long-term value creation strategy that yields a competitive advantage.

Question: What is the social responsibility of your business? How do you make your employees and customers aware of this mission?



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