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Review: Profits with Principles

Written By: Paloma Somohano
Published On: February 5 2009

“Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.” – Margaret Mead

Many years have passed since corporate social responsibility (CSR) made its entrance as a major issue for companies. Performance on social and environmental levels has also become important for organizations to consider. Since CSR’s inception, many initiatives have arisen.

Businesses around the world have sought to take account of sustainable development to conform to the general trend across industries toward better management of global regulatory requirements and a reduction of environmental impact. On the other hand, since globalization has become a crucial aspect of organizations economically, organizationally, politically, technologically, and culturally, it has pushed them towards making adjustments in order to incorporate these new requirements into existing processes.



“Business leaders face complex economic challenges, political uncertainty, and changing societal expectations. Regardless of their industry sector, they are under growing pressure to demonstrate outstanding performance in corporate competitiveness, governance, and responsibility.”[i] – Kofi Annan

The book I’ve chosen to review, Profits with Principles: Seven Strategies for Delivering Value with Values, helps clarify the definition of CSR. The volume (which presents more than 60 case studies on corporate social responsibility) follows a pattern of six projected main values, and focuses mainly on how practicing CSR can help organizations accomplish sustainable development—that is, to fulfill the needs of our current generation without compromising those of future ones. It was put together by Ira A. Jackson (a fellow at the Center for Public Leadership at Harvard University) and Jane Nelson (a senior fellow and director of the Corporate Social Responsibility Initiative at Harvard’s Kennedy School of Government, and director of Business Leadership and Strategy at the Prince of Wales’ International Business Leaders Forum).[ii]

The book is organized in two sections: “Doing Business in a Turbulent World” and “Putting Principles into Practice.”  

Part One: Doing Business in a Turbulent World

This section of the book focuses mainly on the fact that the way we do business has changed tremendously over the past years. Indeed, globalization can be used by companies for the better of humanity, that is, to make a more equitable society and undo the deterioration of the environment we are to leave for future generations. Because of that, there is a rising need for companies to associate with governments and other stakeholders in order to look for the best means to achieve these objectives.[iii]

The authors note several issues currently affecting free market conditions that are prompting that new rules be created within capitalism, since expectations are rising and new challenges appearing. These issues can be summarized as follows:

the current global economic downturn, and the previous bursting of the dot-com bubble (the crash of dot-com companies after 2001)

  • the failure of corporate governance and ethics

  • growing geopolitical uncertainty—war  against terrorism, international trade tensions and anti-globalization campaigns

  • ongoing environmental degradation—global climate change, loss of biodiversity, and water insecurity


These situations are creating new challenges for enterprises, which nowadays are facing new crises (e.g., trust, inequality, and sustainability). Unfortunately, after scandals such as Enron and Andersen, trust has become one of the main concerns for companies searching for long-term positioning in the market. Furthermore, there is now without a doubt a global crisis regarding inequality. According to a survey conducted in 2000, the general trend for options distribution in companies is as follows: 75 percent are top five company executives; 15 percent are the next 50 executives; and 10 percent, all other employees.[iv] Furthermore, sustainability is indeed a central concern not only for companies but for our entire civilization, as humanity’s ecological footprint continues to grow. Therefore, the roles of businesses, as well as governments and non-governmental organizations (NGOs), have to be adapted to confront these new realities.

Part Two: Putting Principles into Action

These principles, identified by the authors, serve as a framework for building CSR and long-term value for any companies. Each of the seven principles is illustrated with case studies throughout the book. 

Principle #1: Harness Innovation for Public Good

In a business framework as globalized as today’s is, corporate competitiveness is central to achieving sustainable growth. Many companies have come to understand that incorporating ethical and environmental innovation has indeed helped create a distinctive advantage. Companies examined throughout this chapter are amongst those that, through sustainable innovation, have become leaders in many industries.

One example that caught my attention is DuPont, a leader in the chemical industry. Going back to the late 1980s, when concerns about chlorofluorocarbons (CFCs) and the ozone layer were rising, DuPont strategically decided to invest in finding an alternative to using substances that deplete the ozone layer. After the 1990s, some of these tactics, formerly seen as expensive and not worthwhile, have now become comparative advantages (win-win approaches) which have given enterprises a distinct advantage over their competitors.[v] 

Principle #2: Put People at the Center

This principle suggests that a balance between stakeholder’s interests is required in order to achieve the organization’s goals.[vi] In fact, communication with stakeholders and securing their understanding are crucial when it comes to companies’ ability to respond to changing conditions and expectations.

Capital, product, and service transactions from and to companies should be recognized and valued. Flow among these participants in the supply chain—as well as with customers, suppliers, and communities, amongst others—is to be identified in order to understand its stakes. The better these stakes are understood, the more value to shareholders and society a given enterprise can add.[vii]

Principle #3: Spread Economic Opportunity

This principle puts forward the idea of using existing national and international supply chains in order to spread economic opportunity. In fact, these strategies can help businesses create and protect long-term shareholder value by spreading their relationships further.[viii]  Without a doubt, new business opportunities can arise from these situations since a better knowledge of stakeholders can be gained.

An example the book provides of such a strategy is Starbucks’ relationship with coffee growers. This company has expanded from a small private business to a global brand listed on the stock exchange, with average sales growth of 20 percent per year and 30 percent per year profit growth. While Starbucks buys only 1 percent of global coffee production, it has been able to make a difference in the social, economic, and environmental conditions of small producers by incorporating ethical values into its supply chain management (SCM)[ix] in a number of ways.

  • Sourcing guidelines: paying producers a premium price if they meet agreed quality, labor, and environmental standards.

  • Technical assistance: helping farmers improve their farming methods through the Starbucks Coffee Agronomy Company.

  • Fair Trade Certified coffee: helping farmers obtain more stable prices in the coffee market, as unstable as it is due to the excess in demand of the product.

  • Community development: partnering with CARE and “raising over $1.5 million (USD) for community development projects that have reached some 2.7 million people in developing countries.”[x]


Even if these seem like small examples, they clearly illustrate what companies can do to improve the lives of impoverished communities while creating corporate advantage in highly competitive industries.

Principle #4: Engage in New Alliances

“As the business environment becomes ever more complex, more competitive, and more global, companies will have few choices other than to develop new forms of dialogue and partnership.”[xi] 

This principle addresses a situation that has existed for many years. Partnerships and mergers and acquisitions (M&A)—among others—have long been maneuvers businesses have made toward increasing competitiveness and facing new market realities. However, the alliances to which the authors refer are not of the common or traditional kind, but cross-sector and/or multistakeholder.

An interesting example mentioned in the book is the partnership between Unilever (one of the world’s largest buyers of fish) and the World Wildlife Federation (WWF), regarding their joint initial concern to stop the negative impacts of overexploitation of fisheries. Unilever, initially representing a small percentage of the total amount of caught fish, realized it had to partner with NGOs and governments in order to have a significant impact on the fishing industry. This led to the creation of the Marine Stewardship Council (MSC) which became independent in 1998. The initiative involved the mobilization of the whole supply chain, from certifying fish (through partnerships with local governments in places like Alaska and New Zealand) to incorporating partners such as Whole Foods Market (the world’s largest retailer of natural and organic foods) and Xanterra Parks and Resorts (the largest park and resort management company in the US). This had led to the creation of new production and consumption practices, forcing competitors to adhere to new, sustainable standards.

As a result, these new sets of alliances have the potential to benefit both businesses and society (due to the “win-win” approaches noted above). Undeniably, these new alliances or partnerships can help companies build more progressive public policy frameworks in order to improve existing market mechanisms and gain advantages over competitors.

Principle #5: Be Performance-driven in Everything

According to the authors, the most successful companies are those that integrate ethical, social, and environmental performance targets into their goals. This is done by establishing management systems, incentive structures, training programs, and compliance processes. Furthermore, these companies report publicly on their successes and are learning and adapting continuously.

As easy as it may sound, integrating ethical and environmental targets is no simple task. It demands having clear strategies as well as effective means to achieve them. The authors identify four steps: commit top executives, set clear targets and metrics, report publicly on progress, and commit to continuous learning.

Finally, the authors recommend the integration of continuous improvement at the core of business processes. In other words, continuous improvement and sustainable development can be achieved by companies through a systematic approach.[xii]

Principle #6: Practice Superior Governance

Successful companies nowadays have come to understand the importance of transparency and non-corrupt practices. Throughout this chapter, the authors insist on the importance of governance in building strong, trust-based networks with critical stakeholders. In fact, the costs of bad governance could be fatal. Companies that understand this principle have established accountability systems, transparency, and stakeholder engagement into their existing practices. Moreover, in the framework of global activities, corporate governance and standardized practices home and abroad are critical; trust is crucial to ensuring long-term success.

Principle #7: Pursue Purpose beyond Profit

One of the most fundamental questions for a given business is: what is the business’ purpose? Indeed, there is a long-standing belief that companies’ sole obligation is to maximize profit. According to the authors, in order to ensure long-term success, profits should be seen as a means, not an end.[xiii] In fact, such purposes can be achieved through values such as innovation, creativity, quality, customer service, etc. However, these statements usually include (explicitly or implicitly) integrity, honesty, fairness, compassion, and responsibility.[xiv] Moreover, value creation is imperative—yet, the social structures in which enterprises work cannot be denied. Therefore, business purposes should go beyond profit making.

Conclusion

Many examples of CSR have been seen over the past several years. Companies have embarked upon many projects in order to improve social and environmental performance. Nowadays, we recognize the positive impact that these initiatives have had on overall corporate performance.

This book is a great compilation of CSR issues, and provides clear examples related to the successful establishment of practices that are concisely illustrated. It offers ideas beyond business-as-usual practices in order to build wealth for companies, countries, and communities:

  • Beyond Shareholder Value: broadening the concept of value to include society and the environment

  • Beyond Compliance: taking compliance as a starting point, not merely a regulation·

  • Beyond Philanthropy: recognizing companies’ role and impact on societies worldwide and adding value by creating jobs

  • Beyond the Zero Sum: aiming toward win-win scenarios

  • Beyond the Short Term: anticipating change, as well as implementing flexible management systems to face constant threats


On a long-term basis, we should expect an organization’s strategies to include a balanced integration of relevant tasks, information, and tools in order to achieve social, environmental, and economic performance. All efforts should be aimed towards shared objectives.

Even though it may seem expensive and complicated, I strongly believe that IT systems aimed at sustainability can very well be the tools organizations can use to facilitate the long-term achievement of ambitious goals—while remaining competitive. Nonetheless, the use of information systems as a means to achieving sustainable performance requires extensive understanding of the potential impacts. These approaches should undeniably be considered as action-oriented and most of all, people-related. Moreover, these changes can only be achieved through the use of cooperative activities and continuous communication processes.


[i] From a speech made at the World Economic Forum Annual Meeting, New York, February 4, 2002.[ii]Jackson, I., Nelson, J. Profits with Principles: Seven Strategies for Delivering Value with Values. New York: Doubleday, a division of Random House, Inc. 2004.[iii]Ibid, 18.[iv] Time. July 29, 2002; National Center for Employee Ownership; and Merill Lynch, in Jackson, I., Nelson, J., 22[v] Boiral, O., Croteau, G. Du développement durable à l’écologie industrielle, ou les métamorphoses d’un « concept caméléon ». Xe conférence de l'Association Internationale de Management Stratégique, mai 2001.

[vi] Cooper, S. Corporate Social Performance: A Stakeholder Approach.
Aston Business School, UK. ASGATE, 2004. Page 21.

[vii] Nelson, J. Building Competitiveness and Communities. 1998.

[viii] Jackson, I., Nelson, J. 142.

[ix] Ibid, 158.

[x] Ibid, 158.

[xi] Ibid, 188.

[xii] Boiral, O. (1998). Réduire les impacts environnementaux par l'implication des travailleurs. Revue internationale de Gestion, vol.23, no 2, 20-28.

[xiii] Jackson, I., Nelson, J., 301.

[xiv] According to Dr. Rushworth M. Kidder and the Institute for Global Ethics (Annual Report 2004), research shows these common shared values across all cultures and political systems. http://www.globalethics.org
 
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