CEOs who have been perplexed about
the tarnished image of corporate
America now have the opportunity to drive profits and positively impact the world.
Often referred to as the fourth sector, the for-benefit business model is composed of
organizations driven by both social purpose
and financial promise that fall somewhere
between traditional companies and charities.
The success of this hybrid model is behind
the emerging trend toward greater social
responsibility and purpose in all companies,
placing competitive pressure on CEOs to
reinvent their company’s mission and vision.
“The emergence of the for-benefit business
model and the rise of corporate scandal is
really a call to action for CEOs,” says Rick
Smetanka, partner with Haskell & White LLP.
“There has been a growing discussion and
debate in this country regarding the role that
businesses play in our society; many believe
that corporations are soulless and exist only
to generate financial profits for shareholders.
The next generation CEO will embody the
notion that profits will be earned by prioritizing social responsibility.”
Smart Business asked Smetanka about
what differentiates the for-benefit model and
how CEOs can reposition their companies to
profit through social responsibility.
What are the drivers influencing greater
social responsibility?
Studies show that our country’s faith in corporate leadership is at an all-time low.
Memories of Enron and WorldCom and the
disappointing choices made by business
leaders, such as Bernie Ebbers and Martha
Stewart, are behind the tarnished perception,
which is causing many business leaders to reexamine their role within their own organizations and, more importantly, the meaning of
their business to society at large. Without an
action plan, CEOs may find themselves in a
position like Wal-Mart, fighting an uphill battle against poor public perception and stagnant valuations that have fallen behind their
forward-thinking competitors.
What is a for-benefit business?
Some for-benefit companies have been
around for a while and are well recognized, such as Newman’s Own, and Ben & Jerry’s
was a for-benefit company before it was
acquired. Many of these firms are very successful because their customers identify their
brand with their cause. Although the business concept is still evolving, the trend
toward for-benefit corporations, also known
as B corps, is growing. Even Wall Street
investment bank, Goldman Sachs has a team
that analyzes the environmental, social and
management responsibilities of these new
companies in much the same way a traditional financial analysis is conducted.
Essentially, the for-benefit company recognizes the generational shifts that are occurring in our society today and uses those shifts
to create a competitive advantage and drive
profits. In a country characterized by aging
demographics and a young work force, for-benefit companies appeal to both consumers
and employees through a commitment to
making a difference in the world. These types
of businesses are where consumers will want
to shop, where employees will want to work
and what communities will embrace.
What steps should CEOs take to focus on social
responsibility?
First, give customers reasons to think
about your organization as more than a commodity. The for-benefit model creates a
greater bond between customers, employers
and suppliers, and everyone understands the
larger objectives. Many of these for-benefit
companies use their social objectives as their
primary marketing focus, which gives them
an identity and establishes their values in a
public forum.
Also, adopt a stakeholder model rather
than a shareholder model. The shareholder
model emphasizes profitability over responsibility and all business activities focus on
driving returns to the company’s owners,
while the stakeholder model aligns the interests of customers, vendors, employees and
community to benefit everyone. Today, leaders and companies that practice a stakeholder model may enjoy a competitive advantage
over their peers.
How should CEOs manage employee and
supplier relations?
Become an employer of choice. Trader
Joe’s and Costco are known for how they
treat staff, and treating employees well is part
of social responsibility. Training, good compensation and employee advancement programs will drive a socially responsible corporate culture as well as attract the best and the
brightest people. Engaged employees will be
more innovative and productive than their
peers, and CEOs will likely earn a strong
return on their investments. Treat suppliers
as partners and contribute to their success
through collaboration and by providing
value-added advice. In turn, suppliers will be
motivated to provide high-quality goods and
services at fair prices.
What else should CEOs do?
Be an active participant in the community
and make sure your corporation stands for
something besides profits. Many organizations, such as Patagonia, donate a percentage
of their revenue to charities and challenge
their customers, vendors and business partners to do the same. By supporting the community and specific social initiatives, CEOs
can lead their organizations to a higher level
of profitability and social responsibility.
RICK SMETANKA is a partner with Haskell & White LLP. Reach him at (949) 450-6313 or [email protected].
