First, Make Money. Also, Do Good.

http://www.nytimes.com/2011/08/14/business/shared-value-gains-in-corporate-
responsibility-efforts.html?pagewanted=all&_r=0
By STEVE LOHR
Published: August 13, 2011

CORPORATE social responsibility efforts have always struck me as the modern equivalent
of John D. Rockefeller handing out dimes to the common folk. They may be well-
intentioned, but they often seem like small gestures at the margins of what companies are
really trying to do: make money.
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Craig LaRotonda
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Weekend Business
As well they should, an argument most famously made by the Nobel laureate Milton
Friedman decades ago. He called social responsibility programs hypocritical window-
dressing in an article he wrote for The New York Times Magazine in 1970, titled The Social
Responsibility of Business Is to Increase Its Profits.
But Michael E. Porter, a Harvard Business School professor, may have an answer to the
Friedman principle. Mr. Porter is best-known for his original ideas about corporate strategy
and the economic competition among nations and regions. Recently, however, he has been
promoting a concept he calls shared value.
Earlier this year, Mr. Porter and Mark R. Kramer, a consultant and a senior fellow in the
corporate social responsibility program at the Kennedy School of Government at Harvard,
laid out their case in a lengthy article in the Harvard Business Review, Creating Shared
Value: How to Reinvent Capitalism and Unleash a Wave of Innovation and Growth.
Since then, Mr. Porter and Mr. Kramer have been championing the shared-value thesis in
conferences, meetings with corporate leaders, and even a conversation with White House
advisers.
Shared value is an elaboration of the notion of corporate self-interest greed, if you will.
The idea that companies can do well by doing good is certainly not new. It is an appealing
proposition that over the years has been called triple bottom line (people, planet, profit),
impact investing and sustainability all describing corporate initiatives that address
social concerns including environmental pollution, natural-resource depletion, public health
and the needs of the poor.
The shared-value concept builds on those ideas, but it emphasizes profit-making not just as
a possibility but as a priority. Shared value, Mr. Porter says, points toward a more
sophisticated form of capitalism, in which the ability to address societal issues is integral
to profit maximization instead of treated as outside the profit model.
Social problems are looming market opportunities, according to Mr. Porter and Mr. Kramer.
They note that while government programs and philanthropy have a place beyond dimes,
Mr. Rockefeller created a path-breaking foundation so, increasingly, does capitalism.
The shared-value concept is not a moral stance, they add, and companies will still behave in
their self-interest in ways that draw criticism, like aggressive tax avoidance and lobbying for
less regulation. This is not about companies being good or bad, Mr. Kramer says. Its
about galvanizing companies to exploit the market in addressing social problems.
The pair point to promising signs that more and more companies are pursuing market
strategies that fit the shared-value model.
Several years ago, executives at General Electric began looking across its portfolio of
industrial and consumer businesses, eyeing ways to apply new technology to reduce energy
consumption. They were prompted by corporate customers voicing concerns about rising
electrical and fuel costs, and by governments pushing for curbs on carbon emissions.
The result was G.E.s ecomagination program, a business plan as well as a marketing
campaign. In recent years, the company has invested heavily in technology to lower its
products energy consumption, and the use of water and other resources in manufacturing.
To count in the program, a product must deliver a significant energy savings or
environmental benefit over previous designs. G.E. hired an outside environmental
consulting firm, GreenOrder, to help in measuring performance. To date, more than 100
G.E. products have qualified, from jet engines to water filtration equipment to light bulbs.
In 2010, such products generated sales of $18 billion, up from $10 billion in 2005, when the
program began.
We did it from a business standpoint from Day 1, says Jeffrey R. Immelt, G.E.s chief
executive. It was never about corporate social responsibility.
Technology has opened the door to markets that have shared-value characteristics. For
decades, I.B.M. sold its computers, software and services to city governments around the
world, though mainly for back-office chores like managing payrolls. But the Internet, the
Web, electronic sensors and steady advances in computing have helped transform I.B.M.s
role, as it now helps cities track and analyze all kinds of data to improve services.
Weve moved from the back office to the core mission of cities managing traffic,
monitoring public health, optimizing water use and crime-fighting, says Jon C. Iwata, a
senior vice president.
I.B.M. is now working with about 2,000 cities worldwide as part of its Smarter Cities
business, which began three years ago. One advanced project is in the sprawling city of Rio
de Janeiro, where I.B.M. is designing a computerized command center. It is intended to pull
data from dozens of city agencies, as well as weather stations and webcams. One assignment
is to closely track heavy rainfall and to predict its impact where flooding might occur, how
traffic should be rerouted, and what neighborhoods may need to be evacuated. The goal is to
predict and prepare for the kind of mudslides and floods that killed hundreds of people in
April 2010 and left 15,000 homeless.
THE evolution of low-cost Internet and mobile phone technology has also let Intuit pursue
opportunities with shared-value attributes. The company offers free online income-tax
preparation software and filing services for lower-income households (now earning $31,000
or less). Since 1999, nearly 13 million people have taken advantage of the service.
The cost is relatively inexpensive for Intuit, as the service exploits the efficiency of online
distribution; the charge for paying customers is $20 to $50. And the program blurs the line
between charity and marketing, because millions of people who are sampling the companys
product, may well become paying customers as their incomes rise.
In India, Intuit has begun offering a free information service for farmers that can be
accessed on any cellphone. Part-time workers check crop prices at local markets and send
the information to Intuit. The company then relays the latest, local price quotations in text
messages to subscribing farmers. As a result, the farmers can make smarter decisions about
when and where to sell their produce.
The service in India began last year, and 300,000 farmers now use it. In follow-up surveys,
farmers report that their earnings are up 25 percent, says Scott Cook, the founder of Intuit
and chairman of the executive committee. The company, he adds, is testing ways to make
money off the service, perhaps with text ads for simple tractors and fertilizers.
Mr. Cook points to other new business forays that are part of the same strategy. One is an
Intuit health debit card for American small businesses that want to pay for some of their
employees medical care but cannot afford conventional health insurance.
We look for places we can use our strengths as a company to help solve big problems, he
says. You can call that shared value if you like. But I look at it as the business were in.
A version of this article appeared in print on August 14, 2011, on page BU3 of the New York edition with the headline: First,
Make Money. Also, Do Good..


Milton Friedman Was Wrong About Corporate Social Responsibility

http://www.huffingtonpost.com/john-friedman/milton-friedman-was-
wrong_b_3417866.html
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Helping companies live their values and tell their authentic stories
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It happens very often when I speak about sustainability and corporate responsibility, and it
happened again last week. Someone will ask me about Milton Friedman's famous quote:
"There is one and only one social responsibility of business -- to increase its profits."
In fact they are misquoting and simplifying just one part of Mr. Friedman's more thanfour
decades' old statement. The complete statement is rather broader and brings in a few
elements of what is today considered to be integral parts of corporate responsibility -- ethics
and integrity.
"There is one and only one social responsibility of business -- to use it resources and engage
in activities designed to increase its profits so long as it stays within the rules of the game,
which is to say, engages in open and free competition without deception or fraud." -Milton
Friedman, New York Times Magazine,September 1970
By leaving out the second half of the statement the shortened quote allows for broad range
of latitude that Friedman surely* did not mean. Specifically when he speaks to avoiding the
deception or fraud (presumably of customers, employees, suppliers, shareholders and a host
of other stakeholders who's interests would not be met by those actions).
Mr. Friedman argues that a corporation, unlike a person, cannot have responsibility. No one
would engage in a business contract with a corporation if they thought for one minute that a
corporation was not responsible to pay its bills, for example. So clearly, therefore, a
corporation can have legal, but also moral responsibilities.
He also uses what to me is the key phrase 'as long as it stays within the rules of the game'
while narrowly defining that in legal terms. But what about the rules of the game that are
not coded into law? There are other rules that businesses must adhere to if they wish to be
successful; such as the obvious rules of the marketplace including supply and demand. In
addition, as we have seen with the proliferation of 'new' technologies, the law usually follows
advancements in technology and thinking. But the fundamental principle of responsibility
often precedes the legal cases being decided because unless or until enough people think
something should be made illegal, it won't be made illegal.
So, if one accepts that 1) companies are in fact capable of having responsibilities and that 2)
they must follow rules of the game beyond those codified into law (particularly concerns
that cross borders and therefore are subject to multiple and sometimes contradictory
statutes) the basic premises behind the argument Mr. Friedman made in the fall of 1970
collapse.
Conforming within acceptable legal limits may keep them out of court, but companies know
well that holding themselves accountable to a higher standard will keep them in good stead
with their customers, employees, shareholders, suppliers, regulators and communities.
Any business, if its wants to be sustained over time, must maximize its profits but do so in a
manner that meets the needs of the stakeholders that allow it to remain viable. When those
needs change, businesses have a responsibility to adapt their behaviors accordingly if it
wishes to survive. That is the piece that Mr. Friedman's argument missed. The rules of the
game have changed in fundamental ways -- and people today expect (and demand) more of
business than simply that they maximize their profits without coming to grief by some
violation of law. Consumers want and expect attributes from what they buy -- quality,
safety, value - depending of course on the price they pay.
Employees want more than a paycheck. Communities want the company to be a good
corporate citizen and hire from the community, provide employees with a living wage, not
pollute and to pay its fair share of taxes and support the community (even if each of these
things are not legally required).
As much as people claim that shareholders are only interested in maximizing short term
returns, recent stories that a decent percentage of Walmart shareholders voted against the
CEO and other leaders because of their handling of bribery charges and working
conditions in factories in the company's supply chain demonstrate that this too is evolving.
Regulators may only require companies to toe the legal line, but things like sloppy
paperwork and cutting it too close to the line (when it comes to things like emissions) result
in more frequent and deeper investigations, costing the company time and money. Having
robust systems in place that ensure a margin of safety also result in less costly enforcement
actions.
Communities often want companies to do more than what is required; leading to a host of
strategic philanthropy efforts that are part of, but do not by themselves constitute a
responsible corporation, especially if they are seen as compensating for a business model or
culture that is less desirable.
And so, I think it is time that we take (the other) Mr. Friedman's argument in historical
context and recognize it as a relic of a past and perhaps simpler time.
Note: The author is no relation to the economist Milton Friedman and has no knowledge of
or insights into Mr. Friedman's thoughts other than what is in the public record.
Follow John Friedman on Twitter: www.twitter.com/JohnFriedman
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