It’s becoming a cliché. Corporations can succeed in “doing well” by “doing good.” There is no contradiction between being responsible and being profitable. In fact, rather the opposite: being good is not only a great way to win hearts and minds (and headlines), but it can also unlock shareholder value.
One problem with this idea is that the catchiness of the phrase makes it sound easy – and it isn’t. A second is that the phrase implies that the reason to do good is to do well.
Even in the absence of regulations, consumer pressure, or a business case, I believe that companies should seek to do the right thing simply because it is right.
“Doing the right thing” requires real leadership and a perspective, starting from the top, that is broader than maximising shareholder value. Companies are institutions in society; people shouldn’t leave their citizenship at the door when they go to work.
That’s not a complicated idea; nor is it a new one. “When the happiness or misery of others depends in any respect upon our conduct,” wrote Adam Smith in 1759, “we dare not, as self–love might suggest to us, prefer the interest of one to that of many.”
Our own managing director, Dominic Barton, puts it in this way: “Business needs a community’s licence to operate within it, and it will only get this licence if its operations benefit that community.”
This kind of orientation requires taking a long-term view. In practice, that means that companies must steward their resources, rather than simply extracting value from them; foster a sense of citizenship and loyalty that attracts quality people; and scrutinize practices and policies that might encourage people to take ethical short cuts for the sake of the bottom line.
Honeywell decided to institute furloughs during the 2008-09 recession, rather than make massive layoffs. As CEO Dave Cote told the Harvard Business Review, not only did many employees naturally prefer temporary unpaid leave to unemployment, but the company kept its human expertise. Recent research suggests that companies that were the most aggressive in cutting jobs reported lower returns than their peers.
Mining giant Anglo American began a comprehensive AIDS prevention and treatment program in South Africa a decade ago that may be the largest such corporate effort in the world. Anglo American reports it has benefited in the form of lower absenteeism due to sickness. But the larger benefit is surely that it has built trust between company and community by saving lives that help to knit together the social fabric.
Novo Nordisk is a large Danish health-care company whose business mission is “to help patients lead better lives”. The company sets and monitors measurable environmental and social targets, such as reaching 40 million diabetes patients by 2020, or reducing wastewater. In 2012, Forbes called it the “most sustainable company on earth.” And its financial performance part has also been solid: revenues have more than doubled over the past decade.
The idea that companies can do well by doing good strikes me as commendable, but limited. It sounds too transactional, almost clinical. It’s wiser to accept that virtue is often its own, and only, reward. When it does bring tangible returns, that’s a particularly satisfying bonus.
Dorothée D’Herde is Director of Sustainability at McKinsey & Company