What businesses owe the world: Then and nowJune 12, 2013: 11:33 AM ET
A 1973 Fortune feature on corporate social responsibility reveals just how much our ideas of how companies should behave have changed.
By Laura Vanderkam
FORTUNE -- What is the role of a corporation? To make money, or something else?
It's a heady debate these days, with the rise of "Benefit Corporations" -- a new class of corporation that requires a positive impact on society -- and calls for companies to police their supply chains in the wake of April's deadly factory collapse in Bangladesh.
But it's not a new debate. Forty years ago this month, in the June 1973 issue of Fortune, Gilbert Burck wrote about "The Hazards of 'Corporate Responsibility.'" On one side, he quoted Milton Friedman, arguing that the purpose of a business was to maximize profit rather than, in Burck's words, "tackle social problems with money belonging to other people (i.e. their stockholders)."
As Friedman said, "No businessman has money to spend on social responsibility unless he has monopoly power. Any businessman engaged in social responsibility ought to be immediately slapped with an antitrust suit."
On the other side of this yawning chasm you had idealists, who "tend to extreme forms of self-righteousness," Burck wrote. In addition to "mere compliance with the law, say the advocates, business should actively initiate measures to abate pollution, to expand minority rights, and in general to be an exemplary citizen, and should cheerfully accept all the costs associated with this good citizenship."
But perhaps, Fortune hinted, there was a third way; a recognition that things termed social responsibility might not just translate into money out the door. They could impact, in their own way, the bottom line of businesses operating in a real and often messy world. Forty years later, looking at some of the companies mentioned in Burck's piece and the broader state of corporate social responsibility, this view seems to have won out.
Neil Jacoby, author of Corporate Power and Social Responsibility and a professor at UCLA, was an early proponent of this approach. "I don't really ask companies to do a single thing that isn't profitable," Burck quoted Jacoby. "But political forces are just as real as market forces, and business must respond to them."
That's how Burck characterized the choices facing Levi Strauss & Co. of San Francisco. "As its many admirers note, the company contributes 3 percent of its net after taxes to carefully chosen social programs," Burck wrote. But "Levi Strauss is obviously getting a lot for that 3 percent. It does business in an intensely liberal city and has a market in which tastes are heavily influenced by young people. And so, whatever its top executives believe in their heart of hearts, their social-responsibility outlays would appear to be rather effective public relations."
Forty years later, many of Levi Strauss's CSR programs still focus on issues that fit with San Francisco's politics. Michael Kobori, vice president of social and environmental sustainability at Levi Strauss & Co reports, "In the early '80s, we were one of the first companies to acknowledge and address HIV/AIDS education and work-place policies." In 1991, "We were the first apparel company to establish a comprehensive supplier code requiring our business partners to meet standards related to labor, the environment, and health and safety."
The biggest difference, though, between the 1973 approach to CSR and today's is that companies delving into this issue tend to wind up looking beyond PR to activities that make the most business sense. The PR benefit is a plus, of course, but that tends not to be the only one.
Kobori, for instance, lists Levi Strauss's various environmental initiatives aimed at using less water and energy during production. While that may help the planet, it also lowers costs, which boosts profits in the competitive apparel industry.
And then there's the question of managing risk. Kobori says, "When we established our supplier water quality guidelines in 1995, many, including our suppliers, questioned why they needed to invest in building water treatment facilities." But, "today, water is a significant issue across the industry. In countries like China, the government is moving to shut down factories that do not have proper water treatment. In initiating these guidelines, we not only improved outcomes for the environment, we also improved outcomes for our business."
This focus on the business case has helped modern CSR initiatives evolve from the crusading sorts Burck fretted about. The 1973 article chronicled CNA Financial Corp.'s production of "an elaborate manual on corporate responsibility -- a document that details just how CNA proposes to involve all its executives in social goals, and how they in turn should involve their charges. The whole opus has a somewhat evangelical tone, suggesting the marching orders for an all-out war on the devil. What it all will cost and who will pay for it are matters nobody seems to talk about," Burck wrote.
Sarah Pang, vice president of CNA's corporate communications department, says that 40 years ago CSR "was a very top-down, command-and-control kind of exercise." The biggest evolution over the decades has been "employee involvement at the grassroots level to shape and drive corporate responsibility and strategies." CNA employees in each community where the company does business can choose priorities for giving and volunteering, which CNA then supports.
The reason? Analysis suggested that local giving produced more bang for the buck. "In blind studies, we would find that in communities throughout the U.S., Canada, and Europe, when it comes to a tie-breaker about buying insurance, people who are involved in the community win the tie," Pang says. Donations and volunteering get the CNA name out in front of the public in a way that's more effective, and often cheaper, than some kinds of advertising.
Or, as Burck put it in 1973, "Corporate executives who are strict constructionists at heart, and who harbor powerful lusts for Almighty Dollars, might nevertheless conclude that an activist social posture was good for their companies." He quoted Paul Samuelson, the Nobel laureate economist, who said that in the real world, a large corporation "not only may engage in social responsibility; it had damn well better try to do so."