Doing Well By Doing Good

By Marty Nemko

It wasn't long ago that most people believed a business should focus only on making a profit. Here's the argument: When a business is profitable, its customers are benefiting, or they wouldn't be parting with their money. And a profitable business employs people who can use their earnings to improve their quality of life and to give to charity, thereby benefiting society's have-nots. But today, many activists, with support from the media and academia, argue that "socially responsible" businesses are superior.

A Socially Responsible Plan

Definitions vary, but a widely embraced one is that a socially responsible business focuses on the so-called triple bottom line: profits, people and planet.

This often means that rather than shoot for maximum profit, a company offers a product or service that meets an important need -- for example, providing laptop computers to some of the billion people who live on less than $1 a day.

It also means treating workers, suppliers, and customers better than a pure profit motive would justify, and making not-so-profitable efforts to improve the environment, or at least to keep damage to a minimum.

Of course, if a business is too Mother Teresa-like, its costs will be high and its revenues low. Translation: You will be out of a business and all your employees out of a job.

How can you be socially responsible and still stay in business? These actions are likely to at least pay for themselves:

Treat your workers with respect. This costs little or nothing yet can facilitate the recruitment and retention of top people. You needn't pay above-market salaries. You may even be able to pay slightly under-market as long as your workplace culture does three things:

Encourages earned praise and does not tolerate bullying, backstabbing and the like.
Provides workers with ample opportunities for real input -- for example, sharing all financial information with workers, inviting their suggestions and offering cash rewards for those implemented.
Nurtures each worker's career development (ask bosses to help each supervisee develop a career plan, and provide or pay for needed training).

Make inexpensive but highly visible donations that prompt current and potential customers and employees to buy from you rather than from a competitor. Examples:

Donate your product to the needy -- and be sure the media know about it. For example, if you make blankets, donate some of your warmest ones to the poor of Siberia. Not only will you get good-guy PR, but also, in future marketing, you can advertise your blankets as "Warm enough to make Siberia comfortable."
Provide the bibs for runners in a high-profile competition. Say you financed bib numbers for San Francisco's Bay to Breakers race, which attracts 100,000 runners. For the cost of some paper numbers, 100,000 people would wear your company's name, viewed by the throngs watching the race on the streets and on TV.

Such donations will offer the impression that you're a good corporate citizen and so, as increasingly is the case, if you need government permission or money for something, you'll have a leg up.

Reduce your carbon footprint. Doing so -- for example, buying used or recycled products rather than new -- may improve profitability as well as your green image. Be sure your Web site, media outreach and products trumpet your efforts. You'll likely attract more customers and good workers in excess of any costs.

Use jump-start charity. Donate to build future demand. For example, give free software licenses (the marginal cost of which is near zero) to one school in hopes that word of mouth will make the district's other schools want to buy it.

Be extraordinarily honest with consumers. In selecting and training salespeople and in marketing, be genuine: Outline your product's strengths and weaknesses as well as which consumers it is and is not ideal for.

For example, an education provider, whether a tutor or a college, that explains what sorts of students are best served will yield more satisfied customers and, in turn, referrals. Plus, your acknowledgment that some potential customers would be wise to turn to a competitor would probably attract other customers as well as employees who are proud to work for an unusually honest firm.

The Bottom Line

After you do all of the above, your business will probably be not only socially responsible but also more profitable. Today, standard corporate practice is to divert some of that profit to charity. But I believe that's unfair to employees and, if it's a public company, to shareholders.

If you want your firm to be even more socially responsible, consider awarding bonuses to worthy employees and declaring a dividend for shareholders, inviting them to donate some of that bonus and dividend to their favorite charity. That way, each person gets to choose the charity they feel is most worthy.

More important, that approach is likely to lead to wiser expenditures of charity dollars than if a company makes the decision. It takes a lot of effort to dispense large sums wisely, and staffs of corporate foundations are often longer on idealism than on the hard-nosed business skills needed to evaluate the cost-effectiveness of charitable options.