Business and Social Contribution

In 1970, Milton Friedman argued strenuously that the social responsibility of business is, above all, to increase profits. In an article for The New York Times Magazine, he pointed out that without profit there are no wages paid and no enterprise with a surplus to offer anyone. Today, many business leaders and activists alike would counter that companies have a responsibility to support various constituencies by being good corporate citizens and even that such support will ultimately benefit the business and its investors.

Still, debate around corporate social responsibility continues to rage, note CEOs who gathered for a recent roundtable discussion cosponsored by Chief Executive and Ernst & Young. At issue are concerns about how public companies should balance their philanthropic endeavors against the responsibility of maximizing shareholder returns, as well as questions around how best to go about choosing altruistic causes, deploying resources and ensuring that those resources are well-used. “Prioritizing the many, many requests to respond to social and corporate responsibility initiatives that we receive as CEOs is a challenge,” says Martin Sullivan, the former CEO of American Insurance Group. “Obviously companies have to take a responsible position, but at the same time we must reconcile that effort with the recognition that it is the shareholder’s money that we may be using for those good works.”

Aligning Interests

For many CEOs, that reconciliation is achieved by aligning philanthropic endeavors with company interests or business goals. “As a public company, you’ve got to really pick your shots and say that there’s a rationale here,” notes Anne Mulcahy, chairman and CEO of Xerox. “For example, we care a lot about educating students in math and science and building an interest in innovation. So, primary and secondary education is a big deal for us and an area of investment. That’s the way we think about it, investment rather than philanthropy.”

Similarly, Western Union Foundation, the philanthropic arm of funds transfer giant Western Union, is geared toward providing education and economic opportunities to its customer base: migrant workers around the globe who send cash to family members. “This year, $400 billion in cash will move around the world, largely in $300 increments, which is an indication of how hard these people are working,” notes Christina Gold, president and CEO of Western Union. “We have a $50 million program that we’re working on to drive job creation and educational opportunities that will enable our customers to have a better life. We feel very engaged in helping those people.”

For Muriel Siebert, founder, chairwoman and CEO of Muriel Siebert & Co., observing the financial naivete of young customers early in her career inspired a philanthropic effort to boost financial literacy among the nation’s youth. “I saw young kids coming in who were basically bankrupt because of having maxed out credit cards,” recounts Siebert, who has created and funded a financial literacy teaching program available free to high schools nationwide. “I decided I would help teach kids about finances. It’s taken 10 years, but we now have a program going into 55 New York schools that teaches kids about things like credit cards, checking accounts and paycheck deductions.”

THE ROI Reward

Increasingly, companies are recognizing that such efforts can have a tangible return on investment beyond benefiting society. “More and more organizations we work with are recognizing the synergies between agenda items that are socially conscious and shareholder value creation,” notes Mark Manoff, vice chairman of Ernst and Young, who points out that investments in social responsibility can decrease employee turnover or reduce waste. “It requires a long-term commitment, but a lot of companies recognize the benefits of initiatives. We see companies looking for ways to drive sustainability and reduce carbon footprint, for example, and the next thing you know they’re improving margins by eliminating resource consumption.”

A strong sense of social consciousness among the nation’s youth may give those benefits a further boost. Already, market research suggests mil-lennials who are in their mid-20sand younger are civic-minded and socially conscious consumers and employees. Over time, that enthusiasm could well transform social responsibility into something of a competitive necessity for corporations, notes Howard Brodsky, CEO of CCA Global Partners. “Younger employees have grown up in a world where social responsibility isn’t a change for them; it’s what they believe in,” he says. “If there isn’t a match between a company’s values and what the younger population believes in, recruiting and retention will suffer for it.”

In the meantime, however, economic turbulence and market pressures mean that alignment of social and business benefit is more critical than ever when justifying involvement to shareholders, who may feel funds would be better spent elsewhere. In fact, the very same programs that were once applauded by stakeholders can become a target for criticism when a company faces financial difficulties. Xerox’s Mulcahy faced just that dilemma while turning the company around after she took the helm in 2001. “That kind of thing gets tested during really difficult times,” she points out. When you’re meeting with 58 banks to discuss your debt load, they tend to look at the $10 million in your foundation and think, ‘easy pickings.’ Those are the moments of truth.”

Xerox’s foundation was an integral part of the corporate culture one that Mulcahy viewed as both crucial to employee morale and the culmination of many years of hard work. “The people of Xerox actually expect us to be good corporate citizens,” she says. “They take pride in that and participate in it, and I think that helped us build the culture that saved our company a few years ago. If you cave on some of those decisions during difficult times, it will take a long time to build that credibility back up.”

While maintaining a commitment to initiatives can be challenging in trying times, faltering from a community or charitable endeavor poses its own set of risks, agrees Jeffrey Sonnenfeld, chairman and CEO of the Chief Executive Leadership Institute at Yale University. “Look at Whole Foods, he notes. If you’re not living the brand, you can come off as a granola-eating neighborhood bully whose [actions don’t] fit the consistency of his company’s brand image.”

What’s more, failing to engage in social issues can land a company in the crosshairs of activists. People have actually gone to fast-food companies and said, ‘you’re contributing to obesity, and we expect you to do something’, notes Brodsky. “Companies have to stay ahead of that thinking today; you can’t just be responsive. Society now says it’s your responsibility to be socially responsible.”

Leveraging Employees

At a time when profit margins are being squeezed and every dollar counts, many companies are finding that employee involvement rather than corporate dollars is the most feasible way to make a social contribution. At Adecco, employee effort accounts for the company’s biggest investment in social initiatives, says Tig Gilliam, the company’s CEO. “The staffing business is very low margin, so our contribution has to be about engaging our colleagues,” he notes. “We sponsor Jobs for America’s Graduates, a school-to-work transition program focused on helping at-risk youths graduate from high school. Part of that is a financial donation, but a big part of our involvement is having our colleagues engage with these students and talk with them about the best job prospects in their communities and what kind of education they need.”

What’s more, offering expertise can be as valuable or more so than funds. Ernst & Young partners combine the two, committing to give a percentage of their income back to the community and to sit on the board of a charity.

At Drew Industries, employee involvement is viewed as more effective than cash contributions in driving progress. CEO Leigh Abrams also sees it as offering an immediate ROI. “We have a contribution budget, but we really focus on encouraging our executives to get involved,” he says. “I find that it’s almost as much of an advantage to the executive as to the charity because they go out and learn how to get things done without a big corporate budget and staff behind them.”

While the large-scale corporate donations win headlines, often it’s employee efforts at the local level that bring the most progress, says AIG’s Martin Sullivan. “You make these large decisions at the corporate level because you’re getting these big asks,’ but meanwhile what your subsidiaries and branch offices around the world are doing with far less funding is having a more meaningful effect on local communities.”

Maximizing the impact of socially responsible endeavors is another area where corporate philanthropy sparks controversy. Circling back to Milton Friedman, one of the economist’s issues with corporate philanthropy was the fact that corporate donations provide no more benefit than those of individual donors an argument that many today contest.

“People like CEOs and executives are probably much better at spending money more effectively and efficiently than people who may be investing in a company,” argues Richard Thompson, CEO of Zootoo.com, an online community resource for pet owners. “A shareholder will turn around and write a check to XYZ Foundation, but a lot of foundations will spend 60 cents of every dollar running the organization and only 40 cents goes to the actual cause.”

At the same time, there is wide recognition that the fragmented charitable and social efforts by individual companies might be more effective when combined into a single concerted effort. “The millions of dollars applied by corporate America toward education are given in a very uncoordinated way,” says Sullivan. “Everybody’s got their favorite topic or favorite school. If we can coordinate all that effort, would we get a better return, as Americans, on the dollars being spent?”

Going forward, collaboration between the private sector, nonprofits and government agencies may prove most effective in maximizing impact, asserts Brodsky. “To really leverage our resources both money and people you have to be in partnership,” he asserts. “We think we can leverage our money better because we understand [operating efficiency] better, but nonprofits understand the mission better. And government has a place as well. All three need to be in partnership together to solve the bigger issues.”