TOMS Shoes

A Case Study examining a company at the forefront of social entrepreneurship and CSR

Aurora Mendez, David Gomez Gurrola, Sumra Khan and Abigail Hunter Corporate Social Responsibility Professor Raphael International University in Geneva, Summer 2011

TOMS Shoes is a company that intrinsically integrates elements of corporate social responsibility (CSR) into all facets of its operation and strategy. CSR is not an additional element to TOMS corporate mission, it is the foundation from which the business is built upon. The core concept is a One for One business model where every product that is purchased, provides a similar donated product. While TOMS corporate strategy may begin from a campaign structured for philanthropy, with CSR at the helm of its corporate vision and strategy, social responsibility takes on various platforms within TOMS company structure. Besides the outward structure of One for One giving, TOMS operational structure weaves CSR onto a variety of platforms. These platforms include poverty reduction, fair trade, and employee rights. Through its policies, TOMS shoes maintains positive relationships within a vast multiplicity of stakeholders in all of the societies in which it operates. The strategy it has undertaken shows it stands to create affluence and benefits for both internal and external stakeholders as it generated wealth for itself. TOMS goes beyond corporate giving, it has institutionalized socially responsible instruments for doing business; moreover, it shows that social responsibility is profitable. Founding a company today with a vision for TOM-morrow Created in 2006, the idea of TOMS evolved when founder, Blake Mycoskie, was visiting Argentina. As his travels extended beyond the tourist trail, Mycoskie, a budding entrepreneur, was shocked and humbled by the poverty that surrounded him. He could not help but recognize a substantial number of children without footwear and this led him to an epiphany. While a donation would provide footwear once, Mycoskie was not interested in making a simple donation. Instead, Mycoskies concocted an idea for a sustainable company that could give continuously. Thus, developing a business model to enable a sustainable income to be generated, from which to provide children with an ongoing supply of shoes. Upon returning to his home in Los Angeles (LA), his first 250 shoes were already made and TOMS, the brand after a better TOM-orrow, was born (Shambora, J). Through hard work and determination, within the first eight months TOMS had sold 10,000 pairs of shoes, spurring the move from his home office into business premises. During this inaugural year, TOMS held true to its mission and completed a shoe drop in Argentina for 10,000 shoes. By the second year Friends of TOMS headed to South Africa where 50,000 shoes were hand delivered. This event has continued annually, reaching Rwanda, Ethiopia, Haiti and even on home soil, in New Orleans (TOMS, 2011b). All shoe drops are captured on camera and made available through TOMS website or youtube.com. This enables consumers to share the experience with all parties involved. 2

 With an increasing level of media attention TOMS sales have increased rapidly and to date, has shown no signs of abating (Pohlman, N). Seventy-two dedicated members of staff and their slogan of One for One resulted in the donation of over one million shoes, operating in 23 countries and generating over US$4.6 million in accumulated profits since its inception until 2009 (TOMS Official Website & Giving Report). As the central theme for its business model, TOMS CSR policies penetrate all levels of the enterprise; CSR practices appear throughout operations whilst reverberating in strategies. While TOMS began with shoes, its success has led to a recent expansion. As of 1 June 2011, TOMS provides glasses and eye tests in exchange for each pair of sunglasses purchased. Both products were carefully considered, ensuring positive profit margins through an increased cost to the consumer, estimated at fifty percent (Oloffson, K). In addition, compelling arguments are given for each product and their ability to aid beneficiaries. Growth of international recognition for the movement TOMS provocative corporate governance structure has not gone unnoticed. To date, the company has received awards such as the Peoples Design Award from Cooper- Hewitt National Design Museum, Smithsonian Institution in 2007. In 2009, TOMS also received the ACE award from Secretary of State Hillary Clinton honoring TOMS commitment to CSR, innovation, exemplary practices and democratic values worldwide. Mycoskie himself has been recognized for his vision and leadership of the company. In 2007, he was awarded a People Magazine Heros Among Us award and has been a featured speaker on social entrepreneurship at esteemed events such as the Purdue Series on Corporate Citizenship (Purdue University News Service). Bill Clinton has dubbed Mycoskie, one of the most interesting entrepreneurs [Ive] ever met, and Bill Gates has used his vision for TOMS as an example of creative capitalism (TIME). Mycoskie was also heralded by Businessweek as one of Americas Most Promising Social Entrepreneurs in 2009 (Businessweek). Social responsibility profitable and recession proof? Originally set up out of the home office in LA, TOMS has now expanded to production plants in Argentina, Ethiopia and China. Each set up in regions where One to One beneficiaries are located. While critics claim that production in developing nations is a means by which TOMS is able to use underpaid labor to produce cheaply and reap profits (Timmerman), the production facilities are subject to internal audits every quarter and annual external audits by the reputable auditing agency Intertek. In these facilities, workers are guaranteed a fair living wage above minimum standards in Argentina and Ethiopia, undisclosed for China and employment contracts that secure continued employment (Intertek Report). Furthermore, the 3

factories undergo evaluation for their safety standards, cleanliness and age of workers (TOMS). The company requires every manufacturer to sign a code of conduct and comply with International Labor Standards set by the International Labor Organisation (ILO). TOMS is one of the few businesses to have sustained its growth throughout the recession. Mycoskies explanation is the appeal of the concept, the low overheads and the fact that giving was incorporated as a fixed cost per shoe into their business model from the outset (Zimmerman, M). Global stakeholders There are a variety of stakeholders, both internally and externally, who can effect and are affected by the decisions of TOMS as a corporate entity. Shareholders to the company are only Mycoskie as the founder, and Argentine partner who invested in the business upon its expansion into production capacities in Argentina, Alejo Nitti. Internal stakeholders include Mycoskie as the Chief Shoe Giver (CSG), employees and manufacturers. In contrast, external Stakeholders include local shoe manufacturers, humanitarian organizations and NGOs, other international brands, consumers, shareholders, and the beneficiaries at the receiving end. The extent of involvement from several of the stakeholder groups is unusual in comparison to alternative for-profit organizations and can be accounted for by CSRs fundamental role in the organizational culture. TOMS prioritizes the interests of stakeholders, especially beneficiaries, synonymously with more traditionally favoured shareholders. Employees at headquarters in Los Angeles are extremely satisfied stakeholders due to TOMS CSR policies in relation to labour standards. The employees are proud of their work, they believe that their involvement contributes to the alleviation of sufferance experienced by the beneficiaries. As a result , motivation and job satisfaction is high. When interviewed Mycoskie attributes employee satisfaction success to the fact that the socially responsible business model attracts superb employees. Ive been lucky enough to attract passionate, dedicated people who will do anything to make an impact on the world, he says. They are all seeking something more than a 9-to-5 job (Zimmerman). Furthermore, TOMS encourages workers be involved on a ground level as well. TOMS currently donates to over twenty countries through a non-profit subsidiary named Friends of TOMS which carries out the role of organising the global shoe drops for employees and volunteers. During shoe drop events each pair of shoes is placed on a childs foot by one of the team, providing a unique opportunity to experience the act of giving in person. These volunteers are also critical stakeholders for TOMS because they are usually consumers or activists who can see the social benefits of their purchase. One of the largest criticisms of TOMS shoes and donating to charity in general is that it harms local industries. However TOMS claims that is does everything possible to 4

avoid this by working alongside Giving Partners. Giving Partners are humanitarian organizations that carry out their own aid and development projects within communities. They provide TOMS with an in depth understanding and presence in the communities they serve. Working in collaboration enables identification of the most suitable beneficiaries and the correct product specifications. In addition, once a community has been identified, Giving Partners act as a distribution point for donations. Giving Partners provide a substantial cost saving for TOMS by eliminating the need for costly research into beneficiaries and sourcing distribution points (TOMS, 2011a). An example of one such organization is World Vision, which has freely distributed the shoes in 12 of the 23 countries the company has a presence in (Business Wire). More recently it partnered with the Seva foundation that has helped to give eye care and treatment to more than three million people around the world (Moore). Such partnerships do not only facilitate the activities and the challenges that TOMS faces, but they provide a service which makes their one for one possible, while at the same time they save on overhead costs. Free marketing opportunities have been provided while working in collaboration with various companies. An example of which is AT&T who in 2009, sent a camera crew with the task of following Blake Mycoskie for several weeks around two continents to show the reliability and importance of their communication services to TOMS (Palmer). In addition, TOMS has enjoyed free promotion and endorsement from Hollywood stars such as Scarlett Johansson, Liv Tyler, Julia Roberts and Ben Affleck to name a few (Admin, 2011). The services and attention received by TOMS provides a substantial advantage over its competitors. Combining an international, high fashion shoe brand with a strong sense of corporate social responsibility provides an additional advantage, other brands that follow their example are unlikely to draw as much attention, and are likely to be criticized for imitating TOMS.1 In this way, TOMS engagement with civil society stakeholders and activists is rewarding for the company. Much like the satisfaction the employees gain for working for TOMS, is the satisfaction consumers get when they purchase TOMS, because they feel they are directly contributing to a good cause. Much of TOMS success has been accredited to

This is in summary, of exactly what happened with Sketchers when they released Bobs shoes. Other brands that are also socially responsible include, Soles4Souls, Flipflops for Families and1 as well as Oliberte foot wear.1 Soles for Soles relies on donations, Flipflops for families as the name implies, concentrates on a different type of footwear than TOMS does. Oliberte is all about manufacturing it shoes in Africa aiming to boost the African shoe industry. These organizations operate differently than TOMS does therefore they are not a threat or are threatened by TOMS shoes.

social networks, their clever use of these allow the creation of a strong relationship between the company and consumers (Bolin). Shareholders gains are reduced to directly increase the amount of benefit received by those in need. Usually this would cause tensions between stakeholders and shareholders because they are fighting to get a larger slice of the proverbial pie. However, the only two shareholders are Mycoskie and his Argentine partner and they established the business with the viewpoint that they were willing to reap lesser profits in order to do greater good. TOMS therefore means shareholder and stakeholder benefits run parallel and increase the company pie as a whole meaning greater profit and greater good resulting from corporate growth. Because the shareholders are not short run profit maximizers and stakeholders all enjoy the opportunities TOMS affords them the company has been able to run an extremely successful business in a socially responsible manner. They are also able to receive great benefits such as free distribution, free advertisement and celebrity endorsement, but most importantly customer loyalty. Corporate vision, mission and strategy for implementation For many companies, CSR represents the creation of new ideas for their public relations campaigns, rather than a real and sustainable change with society and the environment. In other cases, companies take more serious approaches to donate to meaningful causes. An example of this type of companies is TOMS Shoes. Blake Mycoskie, the entrepreneur behind this start up, realized that it was crucial to work in harmony with their customers, government, environment and public to create a positive impact in the lives of disadvantaged children and to be successful. He recognised that consumers, investors and employees are more loyal to good corporate citizens and, therefore, will help the company to contribute to the society in a sustainable way. TOMS Shoes` corporate vision is summed up in their simple coined phrase: One for One. This means that for every pair purchased, TOMS will give away a pair of new shoes to needy children in poor communities. As stated in the book, Strategic Corporate Social Responsibility, the vision is the one that answers why the organization exists and identifies the needs the firm aspires to solve for others (Werther & Chandler, 2010). In this case, the one for one movement represents the involvement of various stakeholders -shareholders, customers, employees, NGOs, etc - making choices to improve the lives of children in different parts of the world. With this vision as his guide, Mycoskie decided to start a company and not an NGO in order to have a sustainable project. The young social entrepreneur claimed that it would have been easier to purchase shoes and distribute them in poor communities; however, had he taken this approach it would have resulted in only a single donation. ,

The strategy adopted by this company follows the premises of the Stakeholder Perspective where the ideal vehicle for the implementation of their vision, mission and CSR policies is the integration of multiple stakeholders to the cause. Mycoskie considers that every stakeholder becomes a philanthropist and a donor at the same time. Therefore, the company promotes their shoes under the motto: help us change the world. TOMS` strategy to fulfill its vision stresses out the establishment of shoe-giving partnerships with international humanitarian organizations that contribute with their expertise and extensive experience in communities that are in need of help. These partnerships are very important since the company can be sure that its donations are having the biggest impact possible. TOMS` strategic partnerships allow the company to: Identify communities that need shoes: determine disadvantaged communities where TOMS shoes will serve economic, health and education needs. Get the proper shoes to children: be sure that their shoes will satisfy the children`s needs. Help their shoes have a bigger impact: TOMS shoes are part of extensive health and education programs run by their Giving Partners. Give children shoes as they grow: once a community is identified, TOMS will continuously supply shoes to help the local children stay healthy and have access to education as they grow up. Provide feedback: the company relies on feedback about its shoes and giving process in order to have a continuous improvement of their programs. TOMS` strategy embodies 5 components. First, the company emphasizes the importance of riding a trend. TOMS identified the rise in consumers who have become more conscious about the goods their purchase as well as of its impact in the society and the environment. More and more consumers are willing to purchase a pair of shoes and know that at the same time they are doing some good in the world. Secondly, the company was created under the premise that sales equal the good done. Mycoskie said, "...we know every day that we're going to give away one pair of shoes for every one we sell, and that's that. If we can't make the business work that way, then the business just doesn't work" (Fritz). Third, the company`s model is a self-feeding loop. Sustainability has been the main concern since the company was created. Fourth, TOMS` strategy depends on the constant motivation and participation of their employees. The successful entrepreneur states that the employee morale is always high because everyone is happy knowing they are doing something to improve a child`s life. This also allows the company to attract a better-caliber talent that seeks to improve the company`s business model. 7

 Finally, the company decided that its shoes will receive more attention if they attach a story to them. If you explain the consumers the company`s vision and its philanthropic activities, consumers will feel good about their purchase and will encourage more people to contribute to the cause. TOMS CSR policies implementation follows medium to long term patterns due to its variety of stakeholders involved. Blake Mycoskie understood that the primary CSR responsibility of a CEO is to actively support the integration of CSR policies into the culture of the firm. TOMS is characterized by a strong focus in philanthropic activities as well as by having a profitable business model. Activism and good intentions do not preserve an operation if basic economical, legal and other business fundamentals are not taken into account. Therefore, the disadvantaged children and the company`s decision to donate shoes in this way together are the reason behind TOMS` successful business model. Instead of making CSR an important part of its business model, TOMS shoes is making CSR the business model itself. Working the offense The CSR central to the structure of TOMS Shoes is an offensive CSR approach to doing business. Structurally, it is a company operating as a for-profit industry yet it still contains elements of altruism. While the company is undoubtedly seeking to maintain their sustainable competitive advantage, it does so in terms of contributing to the global society in which in operates. Through examination of stakeholders, it becomes apparent that TOMS is not simply enacting specific programs nor constructing an outlying branch to incorporate socially responsible actions. It is, instead, maximizing its production capabilities while also increasing its abilities in social cultural engagement. In the process it is benefiting both. An example of a TOMS policy that reflects this is its production in Argentina. Production-wise, it is less expensive to set up a factory and employ workers in Argentina than in would be in the US, where TOMS headquarters is. Furthermore, TOMS original style shoe, is modelled after an Argentine slip-on, the alpargata, thus Argentina was the optimal location because workers were knowledgeable as to the style and quality of the product. Therefore, TOMS was acting to maximize its production capability. However, there is a socio-cultural aspect to setting up production in the country as well. Instead of simply donating shoes to children in desperate situations, TOMS was able to also provide good employment opportunities for adults to provide for their children. In this manner, TOMS contributed to poverty alleviate on both a surface and an institutionalised level. What was in the best interest of the company and made them money was also in the best interest of the society in which it set up operations for both production and as a beneficiary of One to One. 8

Furthermore, these socially responsible activities recruit talented employees to work for TOMS. Mycoskies first employee, Candice Wolfswinkel, now chief giving officer, worked for free for a year before receiving any pay. Chief financial officer Caroline Zouloumian left her career in finance after paying off her loans from earning a Harvard MBA to go work for TOMS (LA Times). In 2009, the company received over 1,000 applications for 15 summer internship positions. One of the main reasons is because employees are able to connect what they do in the office to the good on the ground as part of the Giving Campaign that sends employees on Shoe Drops (TOMS Website). As a result of activities in Ethiopia, where TOMS shoes are pledged to try to treat podoconiosis a foot disease that causes elephantatitis of the foot sparked in childhood from walking barefoot on red soil (WHO) government interest has even begun to spark. In an interview with TOMS, Dr Gail Davey at the School of Public Health in Addis Ababa Public University, Ethiopia praises TOMS for helping communities understand the importance of shoe wearing, and actually delivering shoes to them (TOMS). The centrality of CSR in TOMS business model has also led to positive relationships with activist communities, particularly the most active one: college students. TOMS works to engage these student activists within their business model. Mycoskie himself travels to colleges to speak, and he runs his marketing as a vagabond campaign to raise awareness. Activism is so intrinsically tied into the structure of the company that where marketing or customer service appears for most companies, TOMS has branded themselves as a movement (TOMS website). TOMS does not just conform to the standards of activists, it encourages their involvement in the company. Part of this movement has been the 2008 initiative TOMS began named, One Day Without Shoes. While it essentially was an innovative public relations exercise, TOMS was able to motivate college students across the nation to participate. Those involved should spend anything from a few minutes to a whole day without shoes. Its aim was to enable participants to experience life without shoes and raise awareness of the company and its social mission. While it was initially promoted through university campuses, as the company has gained global recognition, so has the event. By 2010, over a quarter of a million people went barefoot at over 1600 events taking place worldwide (One Day Without Shoes). Because CSR is the nature of TOMS business, TOMS has an offensive CSR approach. Evidence of this is in the positive outcomes TOMS has seen as a result. It has a strong, fruitful relationship with its internal and external stakeholders, and creates monetary benefits and social benefits for itself and societies it exists within. As a result, it automatically recruits talented employees, attracts positive attention from governments and prominent figures, and sells within activist movements. ( I would delete this paragraph) 9

Ethical foundations of structure and giving The structure of TOMS, erected around CSR, intrinsically ties together a mix of complimentary ethical issues in its corporate structure and decision making process. At TOMS, CSR is not applied as a tool but is instead a lens through which all corporate decisions and policies are viewed. Overall TOMS CSR policies fall closer towards altruism than ethical egoism because the company essentially attempts to embody CSR instead of practice CSR. The blending of ethical principles is most evident within their push towards accountability and transparency. TOMS corporate structure and decision making illustrates elements of virtue, deontology, consequentialism, justice and rights as well as cultural relativism. Virtue guides the actions of TOMS in its quest to provide shoes to children in impoverished circumstances. The company is not compelled to hold a One to One giving ratio, but was guided in its mission to do so by virtue; arguably the virtue of Mycoskie. In this way it also encompasses deontological ethics since TOMS set rules for itself upon its formation and is motivated to uphold its self-imposed duties. Consequential ethics also play a role in TOMS decision making considering the nature of the giving scheme. The actions of the consumer will have an outcome on children half the world away. TOMS also views things as such with the establishment of its factories; putting a factory in Ethiopia will lower costs plus serve as a form of poverty alleviation in the disparaged community. Justice and rights are also practiced ethics of the company as it applies codes of conduct and international labour standards to all of its employees and manufacturers. In some cases, such as Argentina, TOMS goes above and beyond national and international standards to uphold human rights and social justice (Intertek). Cultural relativism is another form of ethics that is applied in TOMS decision making. The entire context for entering into Ethiopia to do shoe drops was based upon the desire to help combat preventable disease within the country. TOMS considered the culture of the country and saw an opportunity to help within the context of the society. While not all forms of ethical behaviour are executed across the wide spectrum of decision making TOMS must do, elements of each are evident in specific situations because a combination of them are ingrained in the corporate structure. They are ingrained in the form of accountability and transparency that are major pillars of TOMS corporate structure (TOMS website). Accountability is integrated by TOMS adoption of various codes of conduct such as ILO workers rights standards, fair trade standards. Furthermore, with their annual Giving Report, TOMS openly measures its performance in relation to the goals it had set for itself and rates itself accordingly. In terms of transparency, the constant internal and external auditing programs it has set up provide a window into the quality of their performance across manufacturing platforms. Ethically, accountability and transparency built within 10

TOMS corporate structure is evidence that the company really is attempting to take a virtuous path, and make good decisions that have positive consequences on multiple stakeholders within their cultural setting. Maintaining a critical eye While TOMS may fall closer to altruism on the spectrum, it is still not void from necessity to pursue and create profit; it is a corporation after all. Since its creation, TOMS has made millions of dollars charging consumers in the developed world to provide over-valued shoes to the developing-world poor. Mycoskie has been the greatest single profiteer from the endeavour, now living on a giant sailboat in LA and driving an Aston Martin (Good Intentions). Consumers are told that half the price of their shoe - US$25 buys a second shoe for a child in a world where shoes only cost US$2 to US$3 on average (Nemana). Critics contend that this scheme is remarkably profitable for TOMS because it effectively means that the company is not paying for the shoes themselves but are having the Western consumer pay for both. Furthermore, they say, it outcompetes all footwear sellers in the region of the developing country when TOMS gives its shoes away for free (Mason). Consumer capitalism, where you combine acts of goodwill with acts of consumption, is not a means of development, say critics. TOMS is a good marketing tool, but its not good aid, says Good Intentions Are Not Enough, a blog committed to CSR accountability. However, in the context of corporate culture, it is undeniable that Mycoskie and TOMS are at least attempting to be at the forefront of reforming the social responsibilities of business because it integrates corporate social responsibility (CSR) into all facets of its operation and strategy. TOMS is able to maintain positive relationships within a vast multiplicity of stakeholders in all of the societies in which it operates because of its policies. Its strategy creates affluence and benefits for both internal and external stakeholders and generates wealth for itself. TOMS goes beyond corporate giving, it institutionalizes socially responsible instruments for doing business; moreover, it shows that social responsibility is profitable. 11

Bibliography Brown, Tanya (28 December 2009). Founder and chief shoe giver of TOMS shoes to speak at Purdue, PURDUE UNIVERSITY NEWS SERVICE. http://www.lafayette-online.com/business/2009/10/toms-shoes-founderpurdue Bloomberg Businessweek (2009). Americas Most Promising Social Entrepreneurs, http://images.businessweek.com/ss/09/04/0403_social_entrepreneurs/26 Davey, Gail (5 December 2009). Q&A with: Dr Gail Davey on Podoconiosis, TOMS Blog. http://www.toms.com/blog/content/qa-dr-gail-davey-podoconiosis Gates, Bill (31 July 2008). Making Capitalism More Creative, TIME MAGAZINE. http://www.time.com/time/business/article/0,8599,1828069,00.html Good Intentions Are Not Enough (25 October 2010). TOMS Shoes: Good marketingBad Aid, http://goodintents.org/in-kind-donations/toms-shoes Intertek Official Website. Auditing Services for Consumer Goods: Footwear http://www.intertek.com/footwear/audits/ Mason, Zac, (4 October 2010). Do You Cause More Harm than Good by Giving TOMS Shoes to the Poor?, ZACSTRAVAGANZA. http://zacstravaganza.blogspot.com/2010/10/does-toms-cause-moreharm-than-good-by.html Moore, Booth (19 April 2009). Toms Shoes model is sell a pair, give a pair away, LOS ANGLES TIMES. http://www.latimes.com/features/image/la-iggreentoms19-2009apr19,0,3694310.story Nemana, Vivek (12 November 2010). A tryst with TOMS, AID WATCHERS. http://aidwatchers.com/2010/11/a-tryst-with-toms/ Timmerman, Kelsey (6 April 2011). The problem with TOMS shoes & its critics, MADE IN AMERICA BLOG. http://whereamiwearing.com/2011/04/06/toms-shoes/ TOMS Shoes Official website: http://www.toms.com World Health Organisation, official website on Podoconiosis. http://www.who.int/neglected_diseases/diseases/podoconiosis/en/index

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