These days, we have high expectations of what companies should be. It’s not enough that they make good products. They also need to be good citizens. We expect them to minimize their social and environmental harm, to report their “impacts,” and to give money to charity. And we expect them to do more than simply follow the law. In 1970, the economist Milton Friedman said businesses should think only about making profit (any idea of social responsibility was a distraction and a disservice to shareholders, he wrote). But in the 21st century we’re starting to demand even more: Companies need to solve problems and aid causes, whether it’s Coca-Cola’s diarrhea program in Africa or Pampers’ one-for-one vaccine campaign with Unicef.
Management theorist Michael Porter says business is entering a new, third stage in its relationship with society. First, there was philanthropy: Companies made money doing bad things, but then gave some of their earnings to good causes. Second, there was corporate responsibility (or minimizing harm): Companies tried to do fewer bad things. And now companies are working (or should work) on actual solutions: products and services that serve social problems. “The ultimate impact businesses can have is through the business itself,” he told Co.Exist last year. “There are huge unmet needs in the world today. The question now is how to get capitalism to operate at its best because capitalism is fundamentally the best way to meet needs. If you can meet needs at a profit, you can scale.”
Porter’s Shared Value Initiative looks at how companies can make profits by catering to the need for things like water, sanitation, and economic opportunity. It argues that social causes are sources of competitive advantage, particularly in the developing world, and that socially focused business rebrands what companies are about. Porter says companies have allowed themselves to be portrayed as parasitic and unfeeling toward society, when in fact there’s enormous good that capitalism can do, properly executed.
