Should Companies Aspire to Be “Good”?

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“There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.” Milton Friedman, 1970

“We do things for other reasons than profit motives… We do things because they are right and just and that is who we are. That’s who we are as a company. When I think about human rights, I don’t think about an ROI. When I think about making our products accessible for the people that can’t see or to help a kid with autism, I don’t think about a bloody ROI, and by the same token, I don’t think about helping our environment from an ROI point of view… If that’s a hard line for you, if you only want me to make things, make decisions that have a clear ROI, then you should get out of the stock… We want to leave the world better than we found it.” Tim Cook, Apple CEO, 2014

Clearly there are two schools of thought about whether a company should aspire to more than great profits. Nearly half a century ago economist Milton Friedman famously expressed his view that the purpose of business is profit, pure and simple. Friedman’s view, in turn, was decidedly influential in Wall Street’s, and corporate CEO’s, subsequent embrace of the “profits above all else” conception of purpose — an embrace made official with its own grand-sounding label: “shareholder value maximization.”

But there have been notable dissenters, including most recently, Tim Cook, CEO of Apple. At the company’s 2014 shareholder meeting, Cook was asked by a representative of the conservative think tank NCPPR whether he would agree to eschew any environmental initiatives that lacked a compelling ROI justification. Cook’s response is quoted above. Various commentators made much of his pairing of the adjective “bloody” with “ROI” — a seemingly-clear indication that Cook has strong feelings about whether a company should be guided by, and assessed on, more than its financial performance.

So, should a company aspire to be “good?” Should it aim to “leave the world better than we found it” — a commitment often summarized as “People. Planet. Profits.” — or should it pursue Friedman’s vision instead, what we might call the “Profits. Period,” conception of corporate purpose?

It would not come as a surprise to regular readers of these columns if I proceeded to make the case that “Love your neighbor” — the First Principle of God’s moral universe — means that God expects businesses, not just individuals, to care greatly whether their impact on people and planet is positive. It is for this very reason, in fact, that our Business 360 Framework is designed to help guide assessments about a company’s “Love your neighbor” impacts on both people and planet.

Business 360 Framework - value creation vs value extractionBusiness 360 Framework - primary neighbors

In our post-Christian western world, however, the majority of business people are not believers. For them, appeals to Scripture fall on deaf ears. Even among Christian business people, many don’t see Scripture as meaningfully applicable to business. Albeit unconsciously, they tend to believe the “Good Book” offers good advice for their personal behavior but not for the behavior of their business.

God’s counsel, however, is not merely good (moral, ethical), it is also wise (prudent, rational). Meaning it works in the “real world,” i.e., it produces superior outcomes. Given that, rather than developing the biblical case, let’s look instead at (some of) the real-world evidence in favor of “good” business. Specifically, let’s look at several different business items I encountered in the space of a few days recently, all of which offer persuasive evidence that companies who seek to do good outperform those who simply chase success.

Let’s start with Tim Cook’s comments at Apple’s shareholder meeting. As a prior column (“Why God Loves ‘Insanely Great’ Products”) points out, former CEO Steve Jobs regularly said that Apple was focused neither on money nor market share, but on creating great value for customers. Tim Cook’s statement about Apple wanting to “leave the world better than we found it,” expands further that commitment to doing good. Not coincidentally, Apple’s unparalleled record of profits and growth makes it the most valuable (market cap) company in the world.

I was also intrigued by an article in TechCrunch about the efforts of some San Francisco tech companies to do good in their local community. The story of Zendesk was, I thought, especially compelling. Zendesk is a young software company (IPO: May, 2014) whose products are used by customer service call centers.

The company has a formal Community Benefit Agreement (CBA) with the city. As part of the agreement, Zendesk committed to a variety of efforts to benefit their local community, including:

  • “Promote the development of a healthy, economically functional neighborhood, with the focus on food policy/food justice,” including by:
    • Continuing to grow the volunteer program currently underway with Glide Memorial Church’s “Graze the Roof” program.
    • Contributing $10,000 to the network of community gardens in its mid-Market neighborhood.
    • Sponsoring lectures and panel discussions on food justice issues in the neighborhood.
  • “Help stabilize the existing community,” including by:
    • Utilizing the local restaurant and catering community for many of its events (with specific quotas).
    • Developing a portal or “job board” to give Zendesk and other companies better access to local tech and IT training programs to, in turn, increase hiring from the neighborhood.
    • Donating computer technology, and providing volunteer computer instructors, for local schools.

I was impressed that Zendesk took these community benefit efforts seriously enough that it would sign a formal agreement to that effect — an agreement which was vetted and approved by the local Citizens Advisory Committee. But it was two other aspects of the Zendesk story that really got my attention. TechCrunch reported that “Zendesk employees did about 1,400 hours of community service last year, doing everything from serving in soup kitchens, to tutoring in the Tenderloin Tech Lab, to hosting a tech camp for neighborhood kids.” And the article quoted Tiffany Apczynski, creator of Zendesk’s CBA program, saying that community service has actually become a key recruiting advantage for the company, adding, “Other startups do all this stuff to build a culture. They bring in ping pong tables. They have happy hours,’ she said. ‘But what we do to differentiate ourselves is our social responsibility.”

Clearly, doing good, especially in their local community, is deeply ingrained in the DNA of Zendesk — otherwise employees wouldn’t be so substantially donating their own time. And as Ms. Apczynski’s comment gives evidence, Zendesk has found that their effort to do good turns out to be wise as well: it pays off in recruiting and retention success — a huge plus in the fiercely competitive market for tech employees in San Francisco.

I totally get Zendesk’s experience of what some might call serendipity — that doing good in its community delivers a powerful business benefit by helping attract a talented workforce. Of course, I wouldn’t call it serendipity. God made humankind in his image, then commissioned us to add value to his creation… really, to make his world a better place. We are fallen creatures, true, but we still resonate to our divinely-breathed purpose. We still want, instinctively, deeply, to make the world better. More than anything else, it is how God has wired us to find meaning. It is what gives us the sense that our lives matter.

So we may like ping pong tables and happy hours. But as those who bear the image of God, what we really want is a sense that our lives have meaning, purpose, significance. And we especially want this in our vocational lives where we commit so much of our time and energy. How sad, then, that so few companies offer this… that so few offer employees a real sense that what they and their company do together is significant — that they are, in fact, making the world better.

Adam Grant, Wharton professor and author of the book Give and Take, weighed in on this in a recent article entitled, “The #1 Feature of a Meaningless Job:”

Ask people what they want in a job, and meaningfulness looms large. For decades, Americans have ranked purpose as their top priority — above promotions, income, job security, and hours. Work is a search “for daily meaning as well as daily bread,” wrote Studs Turkel after interviewing hundreds of people in a striking array of jobs. Yet all too often, we feel that our work doesn’t matter. “Most of us have jobs that are too small for our spirit. Jobs are not big enough for people.”

Grant goes on to point out (buttressed by empirical data) that the single strongest predictor of meaningfulness is “the belief that one’s job has a positive impact on others.” He also references Yale professor Amy Wrzesniewski, widely regarded as the world’s leading expert on the meaning of work. Her research distinguishes between employees who see their work as a job, a vocation, or a calling (degrees of engagement), and shows that “a core element of a calling is the belief that your work makes the world a better place.”

Despite all this, a great many companies foolishly embrace the “Profits. Period.” conception of business purpose. As a result, they fail to inspire. They fail even to give meaning to the work of their people. They may attempt a sleight of hand, may attempt to distract employees with the prospect of big promotions, bigger paychecks, and the like. But such distractions prove temporary. Eventually a great many employees conclude that their company is an “emperor with no clothes” — an organization replete with pomp and power and profits, but unworthy of respect. In turn, they grow less committed… indifferent… maybe even hostile. They disengage.

Which brings us to the last, and most compelling, piece of evidence from my recent readings. The Gallup organization has spent several decades extensively surveying employees — literally tens of millions of employees in almost 200 countries around the world. As a result, no other organization understands employee engagement as thoroughly as Gallup… and the effect employee engagement has on business performance.

Recently Gallup released a major report entitled, “State of the Global Workforce: Employee Engagement Insights for Business Leaders Worldwide.” Its findings are dramatic, even eye-opening. And they provide compelling and empirical support for the idea that “good” business — the kind of “make the world better” business that deeply engages the hearts and minds of employees — is also wise business. Here are highlights:

  • Currently, a mere 13 percent of employees worldwide are “engaged” in their jobs — that is, they are consistently emotionally invested in, and focused on creating value for, their organizations. 63 percent are not engaged and 24 percent are actively disengaged (i.e., negative and potentially hostile to their organization).
  • The U.S. fares better, though the results are still distressing: 30 percent of employees are engaged, 52 percent are not engaged, and 18 percent are actively disengaged. Gallup estimates that the costs of active employee disengagement in the U.S. run between $450 and $550 billion annually.
  • Companies with engaged employees dramatically outperform their competition. Specifically, companies in the highest employee engagement category experienced 147 percent higher earnings per share (EPS) compared with their competition.
  • “Gallup’s extensive research shows that employee engagement is strongly connected to business outcomes — such as productivity, profitability, and customer satisfaction — that are essential to an organization’s financial success.” Specifically, median differences between top-quartile and bottom-quartile business units were 10 percent in customer ratings, 22 percent in profitability, 21 percent in productivity, 25 percent in turnover (high-turnover organizations), 65 percent in turnover (low-turnover organizations), 48 percent in safety incidents, 28 percent in shrinkage, 37 percent in absenteeism, 41 percent in patient safety incidents, and 41 percent in quality (defects).
  • And then there’s this: “engaged employees… are the only people in an organization who create new customers.”

Which begs another question: does the issue of engagement play out similarly for customers? Gallup has studied this topic as well. They conclude that 70 percent of engagement for customers hinges on emotional assessments about a company… perceptions about things like trustworthiness, commitment to “doing the right thing,” and the like. In other words, the degree to which customers feel engaged with a company depends largely on whether they believe the company is, in fact, “good.” And just like with employee engagement, customer engagement pays off in business performance:

  • “Fully engaged customers buy more, stay with you longer, and are more profitable than average customers.” Specifically, fully engaged customers represent an average 23 percent premium in terms of share of wallet, profitability, revenue, and relationship growth over the average customer. In contrast, actively disengaged customers represent a 13 percent loss in those same measures.
  • And since “employees ultimately drive customer engagement,” it is not surprising that companies who successfully engage both employees and customers experience a 240 percent boost in performance-related business outcomes (see figure).

CE Customer Engagement

God has created us to want a real sense of meaning and purpose in our lives… meaning which comes, primarily, from efforts to benefit people and planet. Companies who make this their priority — who pursue in some fashion a “People. Planet. Profits.” conception of purpose — inherently engage both employees and customers. Those who instead pursue a narrow “Profits. Period” purpose leave employees and customers apathetic and disengaged. Once again, we find that God’s counsel for “good” business proves to be wise business as well.

 

This post first appeared on the blog at EventideFunds.com. It was republished here with permission from the author.


Unless otherwise noted, Eventide is not an investor in companies discussed in this or other of our ‘faith and business’ columns, nor is there meant to be an endorsement, explicit or implied, of the entirety of any company’s business model, much less of all of a company’s business practices. Rather, aspects of the business model or practices of particular companies are discussed only to help illustrate contemporary examples of larger ‘faith and business’ topics.

The material provided herein has been provided by Eventide Asset Management, LLC and is for informational purposes only. Eventide Asset Management, LLC serves as investment adviser to one or more mutual funds distributed through Northern Lights Distributors, LLC, member FINRA. Northern Lights Distributors, LLC and Eventide Asset Management are not affiliated entities.

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