Guest Post: The Role of Business in Solving Social Problems

Profit and Purpose—a blog co-hosted by The Chronicle of Philanthropy and CauseShift, a strategic consulting company—seeks to provoke new thinking about how companies, nonprofit groups, government agencies, and individuals can work together to solve social issues.

As part of this discussion, we’ll feature guest posts from people who can offer special perspectives on the topic. In today’s post, Charles Moore, executive director of the Committee Encouraging Corporate Philanthropy, a coalition of big companies, offers his views.

By Charles Moore, Executive Director, Committee Encouraging Corporate Philanthropy

Recently, two major newspapers have run opinion columns that our organization, the Committee Encouraging Corporate Philanthropy, believes represent outdated perspectives on the role of business in society.

Jamie White, in a July 21 Wall Street Journal opinion article, says that corporate philanthropy is tantamount to “stealing shareholders’ money.” Meanwhile, the Washington Post’s Chrystia Freeland, on July 18 blamed the “cult of social responsibility” for the oil spill in the Gulf of Mexico and the financial crisis.

Both take the stance of Milton Friedman in asserting that the purpose of business is to make the maximum profit. Ms. Freeland goes a step further by saying that the interests of business and society are not aligned, calling for government to step in as regulators, keeping the “perfectly proper corporate greed” from harming the larger community.

A recent CECP report, Shaping the Future: Solving Social Problems through Business Strategy, based on research by McKinsey & Company, offers a new framework for considering the role of business in society.

Taking a futuristic view, the report lays out five global forces that will affect the landscape for business in the next decade: scarcity of resources, talent mismatches, global connectivity, shifting of economic activity away from the West, and a larger role for governments. These forces, which are certainties, will fundamentally change the way that business does business.

What is uncertain is whether businesses will aggressively address the social challenges that directly affect them or whether they will be reactive, waiting until government regulation reins them in. Also uncertain is whether societies’ expectations for business will continue to increase in the next decade.

This report argues that business has the opportunity to create sustainable value for shareholders if they engage strategically in solving social problems by looking ahead at the issues that will affect their companies, identifying the areas for engagement, and proactively affecting the outcome.

In the report, Mike Duke, Wal-Mart’s chief executive, looks to the future.

“More will be expected from market leaders and globally successful companies, and those companies who are most involved will be most successful, creating an upward spiral,” he says.

The private sector, in comparison to other sectors, is able to move quickly and constantly innovate, drawing upon all the resources of the firm. By applying the same capitalistic models that business successfully employs in its core business operations toward solving social challenges, business can maximize profit and social impact.

The key for business leaders is to strategically choose to act on issues that are linked to the future success of their business, and that they are uniquely qualified to affect the outcome, and to refrain from getting involved in areas where they can’t be effective.

Corporate giving is a smaller percentage of overall giving than one might think. According to Giving USA, corporations account for only 4 percent of overall philanthropy in the United States in a given year, a total of $14.1-billion in 2009.

This includes both cash and noncash giving, in the form of product donation, pro bono service, and other noncash donations recorded at fair-market value. However, the impact of a company’s social involvement can be much more powerful than individual donations or check writing.

Consider the partnership between the Charles Schwab Foundation and Boys and Girls Clubs of America, a recipient of CECP’s Excellence Award in Corporate Philanthropy. Schwab not only provides scholarships to underserved BGCA teenagers but it also drew upon the core competencies of the firm to craft a financial-literacy program so that the teenagers would be equipped in matters of personal finance and productive members of society who may become consumers of Schwab’s services in the future.

Eli Lilly and Company, understanding that the problem of multi-drug-resistant tuberculosis was too large to tackle alone, formed the MDR-TB Partnership, a public-private affiliation of 22 organizations dedicated to eradicating the disease.

Together with the global nonprofit group Partners in Health, also a recipient of CECP’s Excellence Award, Eli Lilly has provided training and medicines to local health providers in post-Soviet Russia to address a deadly MDR-TB outbreak. They have succeeded in reducing treatment default rates from 29 percent in 2001 to less than 11 percent today. This outreach would not have been possible for Lilly without the distribution channels available to the nonprofit group Partners in Health.

The partnerships are sustainable because of the relevance to the company’s the core business, drawing upon the companies’ unique resources and expertise in support of long-term business value.

As Peter Brabeck-Letmathe, chairman of Nestlé S.A. said at a CECP CEO Conference in London in May 2010, “Companies should take a leadership role on issues where they can create shared value, value for both the shareholder and society at large.”

This type of engagement requires taking a long-term view of the profitability of the company, rather than focusing solely on the short-term.

When done effectively, companies can both achieve sustainable business success and move the needle on solving some of the most pressing social challenges of today and tomorrow.

This proactive engagement is no longer optional for today’s businesses. To avoid a vicious circle of regulation and mistrust in business, it is imperative that companies become part of the solution, because now more than ever, the health of society and that of business are inextricably linked.