Paul Klein is the President of Impakt, a B Corp that creates opportunities for corporations to profit from being socially responsible.
Charitable organizations have lost their monopoly on effective social change. According to the 2014 Generosity Index, an annual survey by the Fraser Institute of private monetary generosity in the United States and Canada, donations to charitable causes are declining precipitously. Over the past 30 years, corporate contributions to charities in the U.S., as measured by percentage of pre-tax profits fell from a high of 2.1 in 1986 to about 0.8 per cent in 2012. It is a time of crisis for charities – organizations are losing significant amounts of corporate funding and social programs are at risk of being cut back or eliminated entirely.
Corporations interested in social change want more than a tax receipt and their name on a plaque. Increasingly, they're looking for sustainable social change at the lowest cost in the shortest period of time and have lost confidence in the ability of charities to deliver on this new imperative. Ironically, this approach is the territory of business itself and social implications of profitable businesses are re-defining the landscape of social change.
The opportunity to apply the principles of business to social change has never been timelier and the dilemma of whether or not it is appropriate for businesses to benefit from solving social problems is fading fast. "The historical division between social and non-social business and 'purpose' vs. 'profits' is artificial and antiquated," said Deborah Mills-Scofield in a 2013 Harvard Business Review article titled, Every Business Is (Or Should Be) a Social Business. "At some point, in deciding which supplier to use, in engaging your work force, and in getting your product into users' hands, relationships with people matter. Improving these their experiences always improves the outcome for your company."
Last month, it was announced that survivors and family members of the 1,129 garment workers who died in the 2013 Rana Plaza factory collapse in Bangladesh are seeking $2-billion in damages from Canadian grocery giant Loblaw Cos. Ltd. Kevin Groh, the company's vice-president of corporate affairs, noted that Loblaw is working to improve working standards in Bangladesh and has directed $5-million to local relief including support of the International Labour Organization's fund for long-term compensation to workers and their families.
The Loblaw's response to the tragedy reflects an approach that doesn't go far enough in creating opportunities for people in Bangladesh to profit from their relationship with the company in a way that also improves socio-economic conditions. In addition to largesse, improved standards and better oversight, Loblaw could take real leadership by helping capitalize locally owned suppliers who would have a stake in operating ethically and profit from doing so.
Consider the pharmaceutical industry, a sector where corporations in the business of health have been routinely targeted as being unethical. Big pharma invests billions of its profits in researching and developing new therapeutic drugs that may, or may not, be approved by governments. If they are found to be effective, patients benefit, pharmas re-coup their investment and generate profit and, ultimately, medicines are manufactured by generics at a lower cost. This is a business model that keeps people healthier, saves lives and reduces costs because it is profitable.
There are three things corporations should consider doing differently to generate more profit in ways that also result in social change.
1. Changing donations policies to allow some of the capital that is currently allocated to charitable organizations to be invested in profitable businesses that address social issues. By doing so, corporations can increase their base of capital and improve their ability to address social problems they have identified as priorities.
2. Developing new businesses that are specifically designed to generate a profit and solve social issues. The Loblaw opportunity outlined above is a good example.
3. Partnering with other business that can help scale initiatives. For example, shoe company TOMS partners with Visualiza to help a hospital in Guatemala that provides private care and free vision services for the poor and helps increase access to more than 100,000 people that need eye surgery but are difficult to reach and treat.
Today, making a profit is an essential ingredient of effective social change. Despite giving less to charities, corporations have the opportunity to play a more important role in solving social problems and to make more money at the same time.