“The business of business is business,” or so skeptics of the notion that corporations can or should be a force for good in society often maintain. While a narrow focus on short-term profit maximization seems increasingly outdated, this adage still holds a powerful critique of traditional corporate philanthropy and particularly of Corporate Social Responsibility (CSR). Indeed, instead of symbolic side-activities corporations can do both themselves and society a favor by making peace and virtue an integral part of their corporate strategy, because doing so is actually good for business. Corporations and countries that embark on such a strategy have indeed enjoyed sustainable growth rates while benefitting their communities.
A traditional CSR approach suffers from at least two critical flaws. To begin with, examples abound of companies that have used symbolic community activities to gloss over the harmful effects on society and the environment of their core business activities. Secondly, there is something rather frivolous on the part of executives using shareholders’ money to fund their own pet projects which do not actually make their firms more profitable. To put it more bluntly, if CEOs believe so fervently in their CSR activities they should put their own money behind these initiatives instead of their owners’ assets. As expected, The Economist has delivered a powerful critique of such misguided corporate do-goodery.
At the same time, cynics are wrong to suggest that firms should be oblivious to their effects on society. Instead, modern executives should realize that creating societal benefits is a powerful way to create economic value for their firms. By thinking about the environment they can save money by reducing energy and transportation costs and by making products that are actually good for their customers they are more likely to benefit from their loyalty. Indeed, Harvard Business School Professor Michael Porter argues that doing good is crucial to creating long-term competitive advantage by creating “shared value”.
A number of firms have shown that pursing such a strategy can indeed be highly lucrative. Unilever have managed to engage underprivileged female entrepreneurs to increase sales in India and GE makes $18 billion annually by creating environmentally friendly products. Even the perennial corporate villain Walmart has managed to reduce wasteful packaging as a way to cut costs.
In fact, entire countries have used this strategy to create both competitive industries and better lives for their citizens. Sweden has debunked the myth that lowering carbon emissions is a drag on economic growth by combing reduced emissions with innovation and economic dynamism. As seen below, Gross National Product (GNP) has increased considerably while carbon emissions have gone the other way.
Environmentally friendly technologies are now a buoyant new export sector that is promoted by both the private and public sectors.
From Walmart to Sweden, benefiting society is therefore a vital source of competitive advantage in a globalized economy, and another good reason to be peaceful.