In 2002, the then-still relevant Michael Porter wrote, “…over the last 15 years, corporate giving as a percentage of profits has dropped by 50 percent.” According to him, businesses were caught between the demands of corporate social responsibility and the pressure to maximize profits.
Porter suggested that corporate social responsibility be included in the company strategy. And include they did, primarily for media mileage and public relations purposes. Firms simply create an impression of social responsibility, most of which is in the form of foundations.
As an alternative to the corporate bastardization of social responsibility, there is the social enterprise. According to a naïve definition, these are “businesses that exist to address social and environmental needs, with focus on reinvesting earnings into the business and/or the community.” According to a 2007 report, there were an estimated 30,000 social businesses operating in the Philippines. And despite noble intentions, 75 percent of these enterprises normally fail. The reason is simple: there are hardly any earnings.
Today, the situation is no better.
Psychologist Paul Slovic calls it “psychic numbing.” Explaining how people respond to crises, he enumerates three psychological obstacles. One, people tend to lose sensitivity when presented with large numbers. There is more willingness to help one, but not two or more.
Two, when presented with a number of issues and problems, people tend not to act. They feel that their response will just be wasted, and therefore, not worthwhile. And three, although people may believe in a cause, they are often not willing to sacrifice personal conveniences and security.
Philanthropy is sustained through a constant flow of donations. Social businesses thrive through repeat purchases. An extrapolation of Slovic is apt. Both philanthropy and social businesses are intent on balancing out social inequality and addressing societal problems.
Donations benefit communities in need. But the communities are often strangers to the donor. When requests are numerous, donors get weary. Despite claims of “social” products, customers doubt if the purchase of just one product will make a difference. Besides, there are commercial alternatives that are more attractive.
In 2006, TOMS was founded. According to founder Blake Mycoskie, he started by asking “friends and family to donate money to buy shoes for children on a regular basis.” But the model is not sustainable as it is dependent on donors. Instead of following tradition, Mycoskie created a “for-profit” business. The resulting model is simple: Buy one pair of shoes from TOMS, it will give a pair of shoes to children in need. The more shoes bought, the more shoes are given.
In the same year, U2’s Bono launched (Product) RED. The message was simple: Through consumption of a (RED) product, the customer could help solve social ills. For every product bought, a portion of the proceeds was donated to the Global Fund to combat HIV/AIDS, malaria, and tuberculosis in Africa. The campaign was participated in by companies such as Gap, Motorola, Apple, Starbucks, Dell, among others. The more one consumes, the more donations are made.
Both enterprises have thrived.
Integrating CSR into business is a marriage that can hardly be consummated with both parties equally satisfied. One will definitely have to fake it. Satisfy the stakeholders first and the business will profit from it. Profit first and use them to satisfy the needs of the stakeholders. Interestingly, examples used to support the former are often anecdotal. As for the latter, for obvious reasons, there is hardly any need for support.
*Occam’s razor is a problem-solving principle attributed to William of Ockham (c. 1287–1347), who was an English Franciscan friar, scholastic philosopher, and theologian. His principle states that among competing hypotheses, the one with the fewest assumptions should be selected. Source: Wikipedia.
Real Carpio So lectures on strategy and human resource management at the Management and Organization Department of the Ramon V. del Rosario College of Business (RVRCOB) of De La Salle University. He is also an entrepreneur and a management consultant. He welcomes comments at email@example.com.
Archives can be accessed at realwalksonwater.wordpress.com. The views expressed above are the author’s and do not necessarily reflect the official position of DLSU, its faculty, and its administrators.