Milton Friedman once remarked that the ‘only social responsibility of a business is to maximise its profits.’ According to his theory, if firms focus on profits, everything else should automatically fall into place. However, he added that a company can only do so by focusing on its stakeholders and providing better products, better working conditions, and following environmental regulations to the dot.
It’s almost impossible to ignore the profits vs. purpose debate whenever we talk about CSR. Should a company only be concerned about paying its shareholders a bigger dividend, or, should it follow a more holistic approach and also take into account the environment and communities that it comes into contact with?
Over the last decade or so, many organisations in India have changed the way they approach CSR. Gone are the days when CSR was considered nothing more than ‘social tax’. With big companies like Tata and Wipro displaying how easy it is to facilitate organisational growth through CSR, smaller organisations soon followed suit. Now, we even have fierce competition between rival companies to see who runs a better CSR campaign than the other. For example, PepsiCo and Coca-Cola are constantly trying outdo each other when it comes to water conservation and recycling. In fact, PepsiCo even runs a Positive Water Balance initiative which aims at recycling and conserving more water than they utilise.
Valuing Your Employees
Alan Edmans, Professor of Finance at the London School Of Business, gave a very interesting talk on ‘The Social Responsibility Of Business.’ In his talk, he mentions that it’s ‘employee well-being that causes good performance rather than good performance allowing a company to spend on employee well-being.’ He drove his point home when he told his audience how the top 100 companies to work for in America beat their competitors by a profit margin of 2-3% each year, for a period of 26 years!
What he was trying to reiterate was that the better a company treats its employees, the more profits it earns. He took the example of Costco, which not only pays their staff almost double the average American wage/hour but also stays closed on days like Christmas and New Year’s Eve, when most of their competitors force their employees to come to work.
And despite all this, they still continue to be in the top three wholesale retailers of USA. While their competitors are afraid of facing a loss if they grant employees leave and shut shop on public holidays, Costco realises that a workforce which is motivated and happy is the key to running a successful business.
In India, HCL runs a ‘Teach At Office’ program. Realising the importance of its support staff, they hold free classes on basic computer skills and conversational English. To complement these classes, they also hold workshops on basic etiquette, financial management, and health and hygiene.
Giving Back To The Community
It’s not necessary that organisations stick to internal CSR activities to gain profit. ITC Limited, with their varied portfolio, run a variety of CSR projects all over India. They’re one of the pioneers in watershed development and soil conservation in the country. To aid farmers who provide them with raw material, they help in developing agricultural infrastructure like group irrigation wells, sprinkler units and vermicomposting trenches. They also donate Re. 1 from the sale of each of their Classmate series of notebooks towards the education of underprivileged children.
So what’s the one thing that’s common between Costco, HCL, and ITC Limited? All three are market leaders in their respective sectors. Costco is among the top 3 retailers in the USA, HCL Technologies is one of the top 20 largest publicly traded companies in India, and ITC is a market leader in the tobacco sector and the largest supplier of stationery and branded food products in India.
These three organisations make it quite evident that finding a balance between profit and purpose isn’t hard. No matter how disconnected they may seem, the two don’t need to sit at opposite ends of the scale. Any organisation with a good CSR strategy can easily cater to a societal cause and still derive enough profit to stay ahead of the competition. If you look at the bigger picture, you’ll see that any business will eventually stagnate if it doesn’t seriously consider doing a little bit more than making money.
To summarise what you just read, we’ll quote Alan Edmans one last time, ‘Businesses exist to serve a purpose. And by doing so, and only by doing so, will they generate profits in the long run. To reach the land of profit, follow the road of purpose.’