Can Corporations Save The World?
By Carlye Adler
11.28.06, 12:00 PM ET
In areas of Sri Lanka devastated by the tsunami of 2004, hundreds of children attend new schools and thousands are served by a mobile medical clinic courtesy of Hasbro, the Pawtucket, R.I., toymaker. In China’s Pearl River Delta, 300,000 women migrant workers have been trained in labor rights, legal services and life skills, thanks to San Francisco-based Levi Strauss & Co. And in Africa, Asia and other tropical regions, new cases of lymphatic filariasis, also known as elephantiasis–an incurable disease that puts 1 billion people at risk of disabling deformities–may be eliminated by 2020, in great part because of a billion-dollar donation by London-based pharmaceutical giant GlaxoSmithKline.
All across the globe, corporations are making their mark, not only with visible stakes (such as a new Golden Arches, which goes up somewhere in the world roughly every day), but also through more unlikely investments aimed at improving the planet’s education, health and environmental problems. For better or worse, companies are trying to save the world. It’s a phenomenon that goes by several names: corporate social responsibility (CSR), corporate responsibility or corporate citizenship. But no matter what you call it, the idea that companies should consider their impact on the world–while simultaneously pursuing the traditional quest for profit–has been gaining traction over the past decade and has now reached an all-time high.
In 2005, corporate donations grew by an unprecedented 22.5%, amounting to $13.77 billion, according to the Glenview, Ill.-based Giving USA Foundation. Nearly 1,000 companies now publish sustainability reports–that’s up from zero ten years ago. Since Levi Strauss established the first supplier code of conduct in 1991, Mattel (nyse: MAT –news – people ), Nike (nyse: NKE – news– people ) and about 1,000 other companies now also adhere to voluntary codes of conduct for labor practices, according to the nonprofit organization Business for Social Responsibility, headquartered in San Francisco.
“It was slow to start, but we saw some maverick small companies with phenomenal growth rates, in part because people tuned into the values of these entrepreneurs and bought their products,” says Deborah Nelson, executive director at the San Francisco-based Social Venture Network, citing ice cream do-gooders Ben & Jerry’s, the earth-embracing Body Shop International founder Anita Roddick and natural toothpaste titanTom Chapell, of Tom’s of Maine. Nelson believes that recent events such as the Sept. 11 terrorist attacks, heightened attention to global warming, and the fact that celebrities like Angelia Jolie and Leonardo DiCaprio have made being responsible “cool” have caused the trend to trickle up to the corporate giants. “Mainstream companies are waking up,” she says. “It’s not just a space for pioneers anymore.”
Case in point: Wal-Mart Stores (nyse: WMT – news – people ), long considered by many activists to be among the most reckless companies, found environmental religion. Last year, the company announced it would invest $500 million annually in energy-saving technologies, reduce solid waste by 25% over the next three years and urge its 60,000 suppliers to produce goods that don’t harm the environment.
Now that corporate giants with balance sheets worth more than many countries’ economies are embracing CSR, can the once lofty and intellectual idea that businesses can save the world become a reality? The late Nobel laureate Milton Friedman famously said, “The business of business is business,” and that mantra still resonates with many today.
Tom Borelli, senior fellow at the National Center for Public Policy Research, says companies are ill equipped to tackle the world’s problems. He cites BP (nyse: BP – news – people ) as the “poster child” of CSR gone wrong. Indeed, BP has had its share of troubles lately, including a pipeline leak in Alaska, a plant explosion in Texas City and an oil spill in California. “BP became obsessed with image campaigns that diverted money and management attention from its core business with tragic consequences for its workers, the environment and shareholders,” says Borelli. “BP should have put money into safety and maintenance, not glitzy PR; their real responsibility is to safely and effectively produce oil.”
In response, Sarah Howell, director of corporate communications at BP, said in an e-mail statement to Forbes.com, “These events are unacceptable to us, and we regret and apologize for them.” She adds, “We have $7 billion dedicated to our U.S. safety and integrity effort, and earlier this year announced plans to spend an additional $1 billion over the next four years to improve operational integrity and process safety in our U.S. refineries.”
Borelli, who is also the portfolio manager of the Free Enterprise Action Fund–a mutual fund that uses its institutional shareholder standing to challenge company management on the financial impact of CSR–takes it a step further: “When you boil it down, there are two economic systems: socialism or capitalism. CSR is the viral agent of socialism. Social welfare should come from government and investment from corporations.”
Many argue, though, that in today’s society, working to improve social welfare is just another investment that corporations can–and should–make. More and more, the lines that have divided the public and private sectors are becoming blurred. Take Steve Case, the co-founder of AOL, who is now trying to change the way both for-profit businesses and nonprofit entities operate. He’s promoting a model in which each borrows a page from the other.
Case is so bullish on this “sector-blending” idea that he poured $500 million into Revolution, a for-profit venture that “builds businesses that are changing the world.” The private holding company invests in early-stage, consumer-oriented businesses in health care, sustainable living (think car sharing) and resorts. He’s similarly applying lessons he learned in business to the Brain Trust Accelerator Fund, a for-profit venture capital fund that makes investments in promising companies that develop therapies for brain diseases. Brain disease charities (including Accelerate Brain Cancer Cure, the one Case started with his brother, Dan, who has since passed away) will be given a portion of the management fee and carried interest in the fund that would usually have gone to the general partner. “We are trying to blur the lines and look at philanthropic efforts with an economic angle–with recurring revenue streams that make it more scalable and more sustainable,” Case told Forbes.com. “Major challenges need swing-from-the-fences entrepreneurial thinking. The private sector leads in terms of being innovative.”
Could Case, whose visionary thinking has been right before (the AOL-Time Warner merger notwithstanding), be right again? He’s certainly not the only one who sees power in blurring the lines. In its early stages,Google (nasdaq: GOOG – news – people ) earmarked 1% of its equity for its foundation. Post IPO, its philanthropic dollars are valued around $1.5 billion, which will be used for projects such as improving water quality in Kenya, advancing literacy in India and helping develop affordable goods and services for the billions of people in the world who live on a few dollars a day.
That last effort comes in the form of supporting the Acumen Fund, a nonprofit venture capital fund. Acumen has invested in low-cost mortgages in Pakistan and rural health clinics in Kenya, and it is about to fund affordable private ambulances in India. Not only did Google.org give Acumen its largest single grant to date ($5 million), it also invited the nonprofit to work from its New York corporate office. It’s an idea that makes sense to Acumen, whose very DNA was built on blurring the lines between the nonprofit and for-profit worlds. (It was founded 2001 with seed money from the Rockefeller Foundation, three individual philanthropists and the Cisco Systems Foundation.) “Organizations are merely structures for how things can happen,” says Jacqueline Novogratz, founder and CEO of Acumen. “There are new ways in the 21st century to use the power of the marketplace combined with more human ethos.”
In this new world of corporate citizenship, many enlightened firms have also found that behaving with “more human ethos” is also good business. “In order to make a profit in this day and age, companies are not going to exist if they don’t have corporate responsibility,” says Alan Hassenfeld, the chairman of Hasbro (nyse: HAS – news – people ). “You have to do the right thing,” he says, claiming it helps to recruit and retain employees as well as keep customers.
Many believe, in fact, that CSR will only become a realistic and sustainable way to effect change when it proves to be driven by the bottom line. And the nonprofits that work with corporations don’t think that makes the efforts any less sincere, or appreciated. “It doesn’t make sense to throw stones at Goliath,” says Gillian Caldwell, the executive director of WITNESS, a human rights organization that was founded by musician Peter Gabriel and initially funded by the Reebok Human Rights Foundation. “Companies can do well by doing good, and that’s OK. It will take a collective commitment to do what we can to ensure the sustainability of the planet.”