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What companies need to know

Mark Kramer: I think it’s about actually delivering results. Handing over a big check with a handshake and a smile is nice for the picture but that really doesn’t impress anybody anymore. Enron was a very charitable corporation.

They gave away a lot of money to a lot of causes and they got a lot of awards for how charitable they were. That didn’t really help. I think when we can see that businesses are actually making a difference on social issues, that they’re actually reducing greenhouse gas emissions, that they’re actually creating employment and opportunity in developing countries, that they’re actually cleaning up the supply chain. You look at a company like Nike which back probably 15 or 20 years ago, was being attacked.

There were consumer boycotts because of the labor conditions in their factories -- actually not their factories but the factories of their suppliers. Today, they’re often cited as a great example of corporate social responsibility. What they’ve done is they’ve really cleaned up their act but more than that, they’ve actually brought pressure on the entire apparel industry to clean up its act and to require that labor conditions in all factories in developing countries meet certain standards, not just in their own factories. So they’ve become a very positive force for change.

They’re very transparent; you can go to the website and you can find a list of their supplier factories and you can actually go look at them. That’s remarkable. I think it’s that transparency, it’s that commitment to actually making a difference on the problem that is the key. Another great example is Wal-Mart, which certainly came under a lot of attack for its employment practices, for healthcare issues, for its impact on smaller businesses in regions where they opened stores. Kind of the first thing they did was start advertising on NPR and that really didn’t do so much, but they’ve actually come around. They are now reducing their energy consumption dramatically.

They have put in place some healthcare provision for their part-time employees. I don’t know whether it’s adequate or not but they’ve taken a step there. They are selling only sustainable seafood and as the largest purveyor of seafood in the country, that has instantly changed the fishing industry to make sustainable fishing practices more viable. They’re doing all kinds of things that have real impact and that begins to change how people think.

 

Question: What drives change?

 

Mark Kramer: We really think that the social value proposition that a company brings is the new competitive frontier. This is really what differentiates companies and it’s not just about how you run your operations, whether you’re efficient with your energy usage and efficient with your water usage and so on. But it’s also about how you embed in your product, in the experience of your customer, an awareness of the social benefits that can come and how you feature those as a differentiator. So Whole Foods, immensely successful grocery chain, is really in a different business than other grocery stores because of their social value proposition.

We’ve talked about Prius as being an example of a car that really is distinguished by its social value proposition. But there are more and more opportunities companies are finding out there where consumer preferences have shifted and people want ethically-produced products, they want green products, and they want products that are going to be safe to use. In many cases, they’ll pay a premium for these things and in many cases, the established businesses are so used to defending themselves against these things that they’re missing this shift in consumer preference, and I think there is a great opportunity for new businesses that are starting up to really build this in from the outset and to gain a competitive advantage.

 

Recorded June 4, 2008.

 

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