The Case for CSR: Consumers Demand a Better Mousetrap
by V.S. Harriman, Senior Writer & Editor, Good Company
Yesterday the Wall Street Journal (WSJ) published a piece entitled “The Case Against Corporate Social Responsibility” that can only be placed in the ‘they just don’t get it’ file. Dr. Aneel Karnani of the Ross School of Business at the University of Michigan states that CSR is an illusion, and a potentially dangerous one. Like many in the world of business, Dr. Karnani thinks that managers and executives have the last say in business, and rather than demanding that corporations do the right thing, consumers just need to sit back patiently, until forward-thinking executives smart enough to see ‘that doing the right thing is a byproduct of their pursuit of profit.’ Asking anything more than that, Dr. Karnani concludes, is pointless. Misunderstanding the role of the consumer often comes at the peril of corporations. And here, like many corporations, Dr. Karnani just doesn’t get it. Corporations will do the right thing when consumers demand it, and they are demanding it now!
When speaking of innovation Ralph Waldo Emerson is often quoted, ‘Build a better mousetrap, the world will beat a path to your door.’ And consumers still feel the sentiment to be true. Only now they want more than a mousetrap.
Consumers want mousetraps that are humane. They want mousetraps that are sanitary. They want mousetraps that were built using fair and legal labor that pays a decent wage to the worker without exploitation. They want a mousetrap that does not contribute to deforestation or pollution. In short, the best mousetrap is no longer simply the one most effective at trapping mice. Don’t misunderstand that last statement- of course mousetraps are about exterminating mice, and a profit driven corporation would do well to know best how to do this. But especially now, in this modern world, and especially now, in a down economy in which every single dollar matters, consumers expect a mousetrap to do more. And they expect a corporation that builds mousetraps to do more as well.
Corporate Social Responsibility (CSR) is not a byproduct of the correct pursuit of profit. And it won’t just happen when a few smart executives figure it out. One consumer will demand a humane mousetrap and one consumer will demand an ecologically responsible mousetrap. And so on. Can a mousetrap be all these things and still be a great mousetrap? And can the corporation that builds them still be profitable? Of course it can. And the more the public demands that of corporations the sooner we will have it.
Great post – what disturbs me most about Karnani’s article is the fact that we’re talking about a University professor, here, shaping the hearts and minds of tomorrow’s youth.
I love the “build a better mousetrap” analogy. It’s true: each consumer may have a very different take about what’s important in a mousetrap. There are opportunities to be profitable by creating a more humane trap or a more ecological trap but I think the biggest opportunity is in creating an alternative to the mousetrap altogether about which no one has even dared dream.
I wish Karnani would spend more time helping his students be the ones to dream up that alternative to the mouse trap!
I, too, was disappointed and surprised by that article – not only because I didn’t agree with his opinion, but also because I thought the article was terribly written! Just a bunch of generalities with no back-up data or cases to demonstrate his point. I responded to Dr. Karnani’s article and would like to share it here to continue the discussion:
Is it so wrong for corporations to be profit driven first and socially responsible second? Not necessarily. Companies have an obligation to their shareholders to generate wealth. Whatever type of social cause they decide to engage in should increase bottom line profits and meet their primary responsibility of increasing shareholder value first and foremost. But Mr. Karnani’s overly generic commentary is quite frankly, shortsighted. Aside from the fact that zero data or specific case examples are mentioned, he makes zero reference to all the literature that proves that companies who do engage in acts of public interest are more profitable in the long run. It IS possible to have your cake and eat it too. A few examples:
Pepsi associates their brand with the future generation (aka future consumers) by sponsoring business competitions for young entrepreneurs. They are positioning themselves with the Generation Next and creating life-long loyalists – not to mention an incredible opportunity for these young business minds. A current competition: Pepsi Refresh Project. They are giving away millions in grant money to fund the next best community engaging/improvement idea, including up to $1.3MM for ideas geared towards Gulf restoration. They aren’t giving away dollars for kicks – they’re strategically positioning themselves in the marketplace as the brand of the future, a company who is excited about innovation, and wants to identify – and reward – the best creative talent out there. Who knows? Maybe there in lies the next VP of product design, but at the very least, hundreds of new Pepsi drinkers.
About a decade ago Yoplait was evaluating their position in the market and identifying ways to increase market presence. They partnered with the Susan G Komen for the Cure foundation and initiated the “Save Lids to Save Lives” campaign. Consumers (who are mainly women) mail in their pink yogurt lids and Yoplait donates 10 cents for each returned lid to Komen. Not to take away the value of their contribution, but Yoplait wasn’t just being altruistic – breast cancer disproportionately affects women over men. By 2005-2006, Yoplait had the largest share of the yogurt market at 37% and sales growth that year was at 14% compared to 8% in the overall market. Yoplait has successfully branded themselves as a company that cares about women and specifically, cares about breast cancer, and in doing so, drove sales through the roof. I think the shareholders were more than satisfied with their decision to engage in social responsibility.
On May 5, 1978, with a $12,000 investment, Ben Cohen and Jerry Greenfield opened their ice cream parlor in a renovated gas station and within six years had established the Ben & Jerry’s Foundation to fund community oriented projects. By 2000, the CPG giant Unilever bought the company, but recognizing the brand’s involvement in social and environmental causes, they allowed the company to retain their social responsibility platform. In 2008, Ben and Jerry’s 36% share of the ice cream market was second only to Haagen-Dazs with 44%. They continually meet financial targets while donating at least $1.1MM of profit to philanthropic causes annually.
Consumer knowledge is powerful. A 2006 Cone Millennial Cause Study revealed that 69% of individuals born between 1979-2001 will consider a company’s social and environmental commitment when deciding where to shop, and 89% are likely to switch from one brand to another if the second brand is associated with a good cause. 74% are more likely to pay attention to a company’s message when they see that the company has a deep commitment to a cause. Executives cannot afford to NOT think how they will be socially responsible.
To think that maximizing profits is an either/or game is overly simplistic and inaccurate. Mr. Karnani believes “if executives wanted to forgo some profit to benefit society, they could expect to lose their jobs if they tried—and be replaced by managers who would restore profit as the top priority. The movement for corporate social responsibility is in direct opposition, in such cases, to the movement for better corporate governance, which demands that managers fulfill their fiduciary duty to act in the shareholders’ interest or be relieved of their responsibilities.”
With all due respect, I think Mr. Karnani is not giving shareholders, much less consumers, enough credit to recognize the value and long-term return in engaging in social impact.