In the never-ending hunt for better employee and customer engagement, companies across the world are doubling down on “purpose” and arduously building “purpose-driven” brands. Consumer opinion surveys purport to show that millennial consumers care deeply about the social commitments of the companies they buy from and gravitate toward employers who demonstrate their commitment to adding social value (Case, 2014). In a front page Harvard Business Review article, “Creating Shared Value”, renowned academic Michael Porter described an elegant framework for how to do just that (Porter and Kramer, 2011).
Implicit in much of the heavy breathing commentary is the view that this is a new shift from a world in which companies cared only about profits and pleasing investors. Friedman (1970) is inevitably invoked as the avatar of soulless capitalism, even though his own views were much more nuanced than popularly believed. The truth is that the tension between making money and creating value for stakeholders beyond the investor has existed for almost long as modern capitalism.
Understanding the ebbs and flows of this unstable ecosystem can help ensure that organizations develop and maintain significant and consistent reputational equity rather than continuously running through the Alice in Wonderland world from sustainability to purpose-driven value and back again. Rather than constantly chasing the latest trend in corporate social responsibility, it should be possible to build a sound framework to maintain a long-term relationship with all stakeholders. Creating that “master narrative” is the key challenge of corporate citizenship in the twenty-first century.
The modern era of companies with a sense of social obligation begins in the 1880s with the first great consumer products companies run by Quaker entrepreneurs. The temperance crusader and cocoa merchant, John Cadbury, set up one of the first model villages for workers in 1879, worked to eradicate child labor and to reduce cruelty to animals by setting up the Animals Friend Society. At Port Sunlight, William Hesketh Lever built affordable clean housing for the workers at his new Sunlight Soap factory. As he said at the groundbreaking ceremony: It is my hope and my brother’s hope [. . .] to build houses in which our work-people will be able to live and be comfortable. Semi-detached houses, with gardens back and front, in which they will be able to know more about the science of life than they can in a back slum, and in which they will learn that there is more enjoyment in life than in the mere going to and returning from work, and looking to Saturday night to draw their wages. He backed up this promise with schools, a cottage hospital and social clubs. He later became a Liberal Member of Parliament and campaigned in the Commons for old age pensions and a national eight-hour day, which he had introduced in his own factory in 1894. (Hancock, 2005).
The next wave of corporate philanthropy grew out of the era of the so-called robber barons of the USA, Rockefeller, Carnegie, Vanderbilt and Frick, fueled by popular outrage at the working conditions in the nation’s mines, mills and slaughterhouses. As Woodrow Wilson, elected with a reform agenda, said during his inaugural address on March 4, 1913: We have been proud of our industrial achievements, but we have not hitherto stopped thoughtfully enough to count the human cost, the cost of lives snuffed out, of energies overtaxed and broken, the fearful physical and social cost to the men, women and children upon whom the dead weight and burden of it all has fallen piteously the years through.
It was during the First World War itself that corporate philanthropy took off more broadly, with the Young Men’s Christian Association and the Red Cross being among the greatest beneficiaries. The drive toward local fund raising created by the war lead to the dominant philanthropic model of the 1920s, the “community chests”, to which corporations often contributed more than 20 per cent of the total. Surprisingly, corporate giving did not initially decline after the Crash of 1929 and, in 1935, congressional legislation creating a charitable deduction, controversial though it was, which provided a new incentive for corporate philanthropy. However, the dollar amount of this giving was not large. Even though corporate giving rose throughout the 1940s, it was not until 1945 that corporate giving exceeded 1 per cent of net profits (Soskis, 2010).
In the anti-communist atmosphere of the Cold War, corporate philanthropy became entwined with the survival of the free enterprise system because more and more companies set up foundations to manage their charitable activities in health, education and community welfare. The gradual spread of prosperity throughout Europe after the Second World War, combined with extensive welfare legislation, took some pressure of the private corporation and in the social turmoil of the 1960s, the behavior of corporations toward employees took a back seat to broader political agendas, notwithstanding some spectacular campaigns, such as Ralph Nader’s crusade against the automobile manufacturers, “Unsafe at any Speed”.
Throughout the 1960s, however, another issue, environmentalism, came to the fore. Book-ended by the publication of Silent Spring by Rachel Carson in 1962 and the establishment of the Environmental Protection Agency in 1970, the 1960s witnessed a series of events that put environmental stewardship firmly on the agenda of corporate citizenship: the Torrey Canyon oil spill (1967), the Cuyahoga River Fire in Cleveland (1969) and the contamination of the Rhine over 600 km killing more than 20 million fish (1969). While corporations were initially hostile toward this new social agenda, popular sentiment and the passage of environmental protection legislation throughout the 1970s, forced them to acknowledge their responsibility to exercise better environmental stewardship.
Environmental issues remained the backbone of consumer concerns about corporate behavior throughout the remainder of the twentieth century, but increasing globalization in the 1990s added new concerns to the public agenda. The quality and safety of consumer goods coming from Asia, as well as the working conditions across the developing world created new pressures. Gradually, many US manufacturers from Timberland to Nike adopted strict codes of conduct for their global workforces, administered through regular inspections (Argenti, 2016). These concerns combined with the issue of environmental stewardship came to be associated with the term “sustainable development”.
This is an excerpt from the full article (link below).
“Profiting on purpose: creating a master narrative” appeared in The Journal of Business Strategy, Vol. 37 Issue: 4, 2016 pp.57 – 51, and is reprinted with permission from Emerald Publishing Group Ltd.