The article below contains some very good points; social responsibility can be good by itself. However, Purpose goes beyond CSR. It is about doing good while doing well and requires a Purpose led business design. Purpose is the only source of lasting advantage, and, therefore, of long term value creation.
“There Is No Trade-Off Between Profit and Purpose”, by Alex Edmans, published in Huffpost Business.
Why do businesses exist? To earn profits, or to serve a purpose? For shareholders, or for society, customers, employees, or the environment?
The conventional view is exclusively to earn profit. In 1970, Milton Friedman famously wrote that “the social responsibility of business is to increase its profits.” This view isn’t as hard-hearted as it may sound. Friedman argued that a company can only increase its profits by taking other stakeholders into account — producing high-quality products, treating its employees fairly and having a good environmental reputation. Under this view, firms should just focus on profits, and everything else will fall into place. Consideration other stakeholders beyond the profit implication is at the expense of shareholders: a dollar spent on improving working conditions is a dollar that cannot be paid as dividends.
However, the Corporate Social Responsibility (CSR) view argues that Friedman’s hypothesis only holds in theory. In practice, it’s extremely difficult to quantify the profit implications of most socially-responsible actions. A company could decide whether to grant an employee compassionate leave by trying to calculate the potential loss in morale and productivity if the leave was withheld. But there’s no way you can put a number on that! The CSR approach would be to grant the leave simply because it’s the right thing to do – because the goal of the company isn’t only to maximize profits, but to treat stakeholders with compassion. Treating employees fairly will eventually manifest in greater staff retention and future productivity. However, these long-run effects are difficult to quantify, so a company focused exclusively on profits will not invest in its stakeholders.
Which view holds in the real world? Well, for that, you have to look at the data. I shared the results of a a study using 26 years of data in a recent TEDx talk titled “The Social Responsibility of Business.” Here is a bullet-point summary:
– I give examples of real-life companies (Marks & Spencer, Merck, Costco, Unilever) that successfully implement responsible practices – and are profitable as a by-product.
– One concern might be that the above are hand-picked examples. I then present the results of a rigorous study, suggesting that employee well-being (a dimension of social responsibility) leads to superior stock returns. The 100 Best Companies to Work For in America beat their peers by 2-3% *per year* over a 26-year period from 1984-2009.
– How do we know that this outperformance is due to employee well-being, rather than some other factor? I control for the performance of the industry the Best Companies are in, for recent performance, size, valuation ratios, dividends, risk, outliers, and a whole host of other characteristics.
– I also conduct analyses to suggest that it’s causation, not correlation, of employee well-being that leads to good performance, rather than good performance allowing a company to spend on employee well-being.
– Even though the identity of the Best Companies is public information, I show that it takes the market 4-5 *years* before it fully incorporates this information. The stock market is good at valuing tangible assets, such as profits and dividends, but very slow at valuing intangibles — not just employee well-being, but also innovative capability, customer loyalty, and environmental sustainability.
– Since the market does not take intangibles (such as CSR) into account, investors can earn profits by using these measures. Even investors who do not care at all about social responsibility, but just wish to maximize returns, should pay attention to these measures. Examples include Calvert, Asset4, Trucost, and Sustainalytics.
– I emphasize how social responsibility is not immediately appreciated by the stock market and — like any long-run investment — takes many years to pay off. Thus, investors should not evaluate companies according to whether they meet quarterly earnings targets, but instead take a long-term view.
Below is an article titled: “Stop the narcissism” by Prasad Sangameshwaran, published in The Hindu Business Line.
Most marketing managers will slam the door on this discussion. If you think differently, the future will welcome you with open arms.
How do you identify the red flags in a strong brand?
A strong brand in itself is not a problem. But when the top management assumes that a strong brand can continue indefinitely, it becomes a problem. The common assumptions are that customers will continue to come back or that they can indefinitely continue stretching the brand into newer categories and so on.
“It’s a case of arrogance and also a lot has to do with misplaced assumptions,” says Unni Krishnan, managing director, LongBrand Consulting. Most iconic brands fall because they overestimate their strengths to such an extent that those very assumptions come back to hurt them.
Nikos Mourkogiannis, chairman, LongBrand, cites the example of Westinghouse Electric Corporation which was then the second largest company in the world.
The corporation was the first employer of Mourkogiannis after his graduation from Harvard.
The company, which already had 56 business units, was then planning major investments in real estate to build smart cities in which most managers had no experience. “I was soon a witness in the bankruptcy court,” says Mourkogiannis.
Most brands are milked dry for short-term profit maximisation because the market capital of companies is tied up with that, adds Krishnan.
“It comes from one of the most colloquial concepts called shareholder value maximisation.
Most discussions on brand equity are based on qualitative dimensions but in reality it has to be about long-term cash flows that will be realised in the future from the brand,” he says.
In such a scenario, the call for the management is to decide on whether they should invest in the long term by forgoing some aspects of the current profits.
“These decisions are completely flawed in the board room,” says Krishnan. In most cases, the sole purpose of the brand and company has become short-term profit maximisation. “This is typically how culture, values and innovation go for a toss,” says Krishnan.
Take the example of Kodak, which was a superpower of a brand, leading in all aspects. The company had a strong film business, but it also had a set of digital products.
Kodak was 15 years ahead of competition and had ramped up its digital technology but its managers continued to push the existing film business. The leadership of the company was about serving the masters on the Wall Street. In this case, investment in a brand need not mean hiring a brand ambassador or making a big-bang marketing campaign.
Another example he cites is of Volkswagen, which had one of the best advertising campaigns and was perceived to be the global leader in green engineering and diesel technology. “What did they do inside?” he asks.
In most cases the brand builds up a certain set of values but the culture of the company is completely divorced from it.
That’s why the lifespan of corporations is constantly declining. This happens particularly when the compensation of leadership is tied up with market capital improvement, says Krishnan.
The problem with brands is that most of the time brand managers spend time with communication agencies thinking that these are the people who will rescue their brands or take it to the next level.
Krishnan says, “While a part of the attention needs to go to that section, a more compelling argument for brands has shifted to the lifetime value a brand can generate.” This is a discussion that has escaped most brand managers.
Most brand managers engage in narcissistic self-fulfilling discussions on these brands. It calls for an urgent need to reframe the rules of marketing.
This is the second part of a series on why brands need a purpose.
To be continued
The Purpose of Nikos & Co is to help Greece regain its dignity by mobilizing the best of the Greek International Experts to help Greek companies throughout the country become more competitive. Only competitive companies can create the jobs Greeks desperately need.
The company provides:
· Restructuring Studies ,
· Negotiation Support with Stakeholders
(State Agencies ,Unions, Banks or Shareholders)
· Turn- Around Management and
to viable Companies that are experiencing temporary challenges.
Nikos & Co maintains active relationships with
· 4 leading International Banks,
· 2 global Consulting Companies
· 2 major Investment Funds
· 2 International Law Firms
The Board and Staff of the firm are comprised of Greeks who have worked with distinction in the arena of international competition and hold graduate degrees from the world`s leading Universities.
They include MBAs, Engineers, Economists, Lawyers and Accountants.
The firm has offices in London and Athens.
Inquiries can be addressed to Nikos@Nikos.com
- The True Purpose of the Board
- Purpose: The Search for Strategic Alignment
- The Return in HR from Purpose
- Purpose-Led Planning & Strategy Execution
- An Interview with Nikos
- Using Purpose to Drive Innovation
- Thinking on Purpose
- Purpose: The Starting Point of Great Leadership
- The Search for Purpose
- Four Routes to Success
- Purposeful Leadership