“We exist to maximize profits and shareholder value” is still a valid purpose of any for-profit organization. However, predominantly driven by the millennials, the super popular Socially Responsible Organization or SRO have essentially re-defined the notion of “profits” and “shareholder value.” SRO is more respected, desirable to work in, and more successful because it don’t exist just to make money. SRO strives to make this world a better place. It offers more opportunities and areas for innovation as it uses it’s business as a means to solve problems related to people, communities, the environment, and civil societies.
The popularity of electric cars, the rise of the social economy led by the likes of Air BnB and Uber are prime examples of a SRO. So what is so different about such companies? Why are they super popular and so successful? Why are their employees happier, less stressed, and well paid? In this article we explore, fundamentally differentiating, five characteristics of a Socially Responsible Organization.
Difference between Non-profits and SROs
A non-profit organization solely exists to address problems in a particular area of our society, such as poverty, education, the arts, and access to basic health. It’s motivation is not to maximize profits but to serve their intended purpose. The foundational motivating factors are selfless and driven entirely by social and humanitarian ideals. A good non-profit organization minimizes cost of operations and divert maximum dollars towards its main cause. The profits, if any, are generally used towards research and development and improving their business efficiencies.
In contrast, a for-profit organization may give to charity, sponsor employee volunteer time, offer commuter checks and day care credits, and even have foundations focused on some cause. Coca-Cola has Polar Bears and McDonalds has Ronald McDonald. Although they are commendable pursuits they don’t necessarily make an organization socially responsible.
Here are five essential characteristics of a Socially Responsible Organization:
1. The Purpose
Social responsibility is always the main purpose for creating an organization. It’s in their DNA. Air BnB provides families a way to earn extra cash by leveraging unused living space in their homes. Uber helps people do the same with their free time using their cars. A SRO strives to make everyone up and down the supply chain successful and thrive like when the ‘World of Good’ created markets for arts and crafts produced by women living in poor villages around the world. A for-profit organization, on the other hand, might cause a factory, a small retail store, or even an entire region’s industry to shutdown in order to win market share.
2. The Products
Perhaps the biggest differentiating characteristic of a SRO is that its products, services, and pricing policies are also socially responsible. This is by far the toughest thing to accomplish. A true SRO concerns itself with things like does it have products that have long-term health hazards or environmental and safety hazards? Are their products harmful to animals and plants? SRO also dives deeper at the ingredient level and inquire about things like what health risks are there of using say gasoline by products to peel carrots and garlic.
On the other side, the products and services of a SRO have a deeper and longer lasting social impact – A World of Good (promotes fair trade for handcrafted goods), The Honest Company (provides non-toxic products for homes) and Tees for Trees (plants a tree for every tee-shirt sold) are among the many examples.
3. The Service
One can think of many examples of service policies that don’t take the “people factor” into account and are solely priced or designed based on operations or cost. A few years ago all major airlines terminated their bereavement pricing. Today, If you incurred a change fee so you can attend your father’s funeral, airlines would still charge you the $200. In all fairness, one airline I found still charges you $200 up front which you can get back AFTER you submit a death certificate and write a letter. Some find it to be very insensitive. By far the biggest example and the most easy to solve is the over-use of the automated phone systems. In some cases people spend hours holding and navigating through the phone system and never getting their issues resolved. That’s not a very good use of your “valued” customer’s time.
4. The Employees
A SRO would spend more than average on it’s employee benefits and education programs and share more of their profits with them. SRO has social programs such as new mothers, day care, work from home, and flexible work hours to name a few. SRO employees are advocates of their company and its products. I’d like to call Southwest Airlines “the employees’ airline.” I don’t know of any other airline who’s flight attendants compose (on their own time) original songs to entertain their passengers. Salary gaps between executives and employees at a SRO are not in multiples of thousands of percentages but in the low tens and hundreds.
5. The Communities
A SRO enhances the lives of the communities in which the company operates. SRO gives significant support to charities and sponsor community volunteer programs. However, it goes much beyond. SRO generally avoids laying people off. It is concerned with things like what type of education it’s employees’ children are receiving? Do teachers in local communities have money for supplies? Did corporate tax cut take money away from local school district? How many employees are commuting for more than an hour each way? Does the nightly cleaning crew make enough money so they don’t have to eat every meal at a fast food restaurant?
SRO also uses it’s power and reach to bring about social change in the communities that they operate in. Marc Benioff’s 1-1-1 pledge to contribute 1 percent of equity, 1 percent of employee hours and 1 percent of product back to the community has been adopted by more than 700 organizations. A good SRO partners with key research and development organizations to solve serious world problems and gives away it’s products at low or no cost to deserving populations.
Can a traditional for-profit organization become a SRO?
Perhaps not entirely. There are ways, however, by which a company can move, in a significant way, towards becoming a SRO. Sometimes we must choose between what’s right and what’s easy. Some companies would have a much harder time and will take a long time to bring about the magnitude of change required. It might require dropping or enhancing product lines, changing ingredients like Subway Sandwich introducing hormone-free grilled chicken. It might require switching supply sources if a supplier is engaged in inhumane treatments or does not pay their employees well. It may require a company to divest it’s entire product division or acquire new companies. It might take some time to change the mentality, compensation models, supply chains, country where it’s sourcing products from, and even it’s culture in order to become a Socially Responsible Organization.
Update to the article on April 22, 2017.
I must provide commentary regarding AirBnB and Uber, the two companies are cited above. Studying the genesis of these organizations, it is very clear that they started out with the best of intentions; AirBnb wanted to connect travelers with the locals and offer a culturally rich travel experience while letting host families generate extra income with their unused space. Uber wanted to provide a platform for people to make extra income using idle time of their cars. However, unfortunately both companies have lost their ways.
AirBnb has tons of bugs in their software which disrupts normal business badly. It is also being battling legal issues for not following local laws and also supporting people for racial profiling their hosts or guests and also fixing the search results so only high paying properties show up.
Uber has had a number of PR issues; they are in hot waters for meddling with the taxi strikes, treating their drivers unfairly, allegations of discrimination and sexual harassment, and a viral #DeleteUber campaign. The list keeps going.
This goes to show you that doing the right thing is not easy. Being socially responsible requires doing the right thing starting from the foundation; the culture, the behavior, the policies and business practices.