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The Debate Over Doing Good


It's 8:30 a.m. on a Friday in July, and Carol B. Tom? is starting to sweat. The chief financial officer of Home Depot Inc. (HD) isn't getting ready to face a firing squad of investors or unveil troubled accounting at the home-improvement giant. Instead, she and 200 other Home Depot employees are helping to build a playground replete with swings, slides, and a jungle gym at a local girls' club in a hardscrabble neighborhood of Marietta, Ga. Dressed in a white Home Depot T-shirt, a baseball cap, and blue capri jeans, Tom? tightens bolts, while others dump wood chips, mix concrete, and sink posts. The company, together with nonprofit playground specialist KaBOOM!, plans to build 1,000 more such kiddie parks in the next three years -- and spend $25 million doing it.

Is this any way to build shareholder value at Home Depot, where the stock has been stuck near $43, down 35% from its all-time high? Chief Executive Robert L. Nardelli and his troops think so. Last year about 50,000 of Home Depot's 325,000 employees donated 2 million hours to community service. Now, Nardelli is trying to encourage more companies to volunteer at Home Depot's pace. At his invitation, executives from 24 companies and foundations gathered for five hours at Home Depot's Atlanta headquarters in May to discuss community service. Attendees included Lawrence R. Johnston of Albertson's (ABS), F. Duane Ackerman of BellSouth (BSC), Gerald Grinstein of Delta Air Lines (DAL), and William R. McDermott of SAP America (SAP). On Sept. 1 these CEOs and others will kick off "A Month of Service," an ambitious plan, developed with community group the Hands-On Network, to deploy corporate volunteers on 2,000 projects across the country, and raise the total number of volunteers by 10%, or 6.4 million, in two years. "We look at this activity with the same eye that we look at business," Nardelli says.

Yes, companies have long paid lots of money -- and lip service -- to philanthropy and public service. But as Nardelli's confab indicates, managers from all parts of American business are increasingly seeing social responsibility as a strategic imperative. In June, General Electric Co. (GE) released its first "Citizenship Report" as a way for interest groups to assess its social performance from air pollution to volunteer hours. That followed the announcement in May of GE's ecomagination program, which will invest billions in environmentally friendly technologies. IBM (IBM) uses its On Demand Community -- a 40,000-employee volunteer program -- as a way to bring IBM technologies to schools and community centers and plug its brand. Even the legendarily hard-nosed Wal-Mart Stores Inc. (WMT) has come around to the cause. "We thought we could sit in Bentonville [Ark.], take care of customers, take care of associates -- and the world would leave us alone," CEO Lee Scott said at a recent analyst conference. "It doesn't work that way anymore."

BEHOLDEN TO MANY

What's behind this realization? At the very minimum, it's clear that companies recognize it takes a robust, sharp public-relations strategy to navigate through the mines of today's operating environment. Among them: increased regulatory scrutiny; a global, 24-hour news cycle; and communities hostile to scandal-tarred big businesses. But what Nardelli suggests is something deeper. In fact, it's a growing embrace of so-called stakeholder theory, which posits that companies are beholden not just to stockholders -- but also to suppliers, customers, employees, community members, even social activists. That's quite a departure from the long-dominant notion that corporations' only duty is to increase profits for shareholders. "Things have become a lot more interdependent," says Nardelli. "There are a broader range of constituents."

Such platitudes, of course, make critics cringe. The Nobel prize-winning economist Milton Friedman, 93, casts a long intellectual shadow over the debate. In a seminal 1970 New York Times Magazine article, he declared social initiatives "fundamentally subversive" because they undermine the profit-seeking purpose of public companies and waste shareholders' money. Even today, Friedman, a senior fellow at Stanford University's Hoover Institution, rails at the idea that managers elected by shareholders to run companies should spend their profits on social causes. "Adam Smith said in 1776: 'I have never known much good done by those who profess to trade for the public good.' It's a good quote," says Friedman.

There's no doubt that a surge in community outreach and do-good deeds is, in large part, a gussied-up bid for good favor. Tarred by a raft of corporate scandals from Enron to WorldCom, social outreach can be a way to regain the high ground. That's probably one reason corporate giving hit $3.6 billion last year, an all-time high, up from $3.5 billion in 2003, according to philanthropy research group the Foundation Center. Indeed, Nardelli argues that a "dark veil" hangs over big business. It is exacting tangible penalties: Based on its $91 billion market cap, Home Depot was required to shell out an estimated $1 million last year to fund the Public Company Accounting Oversight Board, an outfit created by the Sarbanes-Oxley corporate reform bill to monitor the work of auditors. In effect, say Home Depot executives, all public companies are paying for the sins of a few.

But more than mere public relations appears to be at work here. Companies are being forced to address the concerns of customers, employees, and investors -- in order to keep them. Such pressure is why last year Gap Inc. halted relationships with 70 of its overseas factories over alleged labor abuses, and has for the past two years issued a social responsibility report. Or why Nike Inc. is now a world leader in setting safety standards for overseas workers. When the controversy over its sweatshops erupted several years ago, managers mistakenly believed they could afford to ignore the outcry simply by cranking out hip shoes. "It is no longer an option to sit on the sidelines," says Bradley K. Googins, executive director of The Center for Corporate Citizenship at Boston College.

YOUTHFUL IDEALISM

More important, the calls for change are coming from inside the corporate walls. A new generation of employees is demanding attention to stakeholders and seeking more from their jobs than just 9-to-5 work hours and a steady paycheck. The number of Gen Yers -- those born between 1977 and 1994 -- in the working world has grown 9.2% since 1999, while the number of Gen X workers remained flat, and baby boomers declined 4.3%, according to Robert Szafran, a sociology professor at Stephen F. Austin State University in Nacogdoches, Tex. As a result, Home Depot and others are finding that burnishing an image as a socially responsible company helps to attract younger workers, at all levels. "One of the things we compete most for in the marketplace is our associates," says Nardelli. "I'm not sure that was the case [two decades ago]."

Take Sewell Avant. The 25-year-old senior procurement analyst graduated from the Georgia Institute of Technology in 2002. During college, he cleaned churches and did regular social projects with fraternity brothers. Now he's carrying on that tradition at Home Depot. He took a day off, without pay, to help mix concrete at the playground project in Marietta. His entire department will do more kiddie-park construction on a weekend in August. For Avant, volunteering adds meaning to his day-to-day job. "Employees are trying to marry their work and nonwork lives. If the company gives them a chance to do that, then they're happier," says C.B. Bhattacharya, associate professor of marketing at Boston University's School of Management.

That's why younger companies are baking the social responsibility concept into their culture -- and demanding investors accept the cost. Costco Wholesale Corp. has long offered generous compensation to its workers, to the scorn of Wall Street and the detriment of its stock price. In the 1980s, networking giant Cisco Systems Inc. (CSCO) opened its first office in East Palo Alto, Calif., a run-down neighborhood amid the prosperity of Silicon Valley. Cisco Chairman John Morgridge worked as "principal for the day" at a school next door. "We're in business to get results. This is just a different currency," says Tae Yoo, Cisco's vice-president for corporate affairs.

Indeed, it has been a rude awakening for companies that have not embraced a more strategic approach to social responsibility. For years Wal-Mart has been a top corporate donor. But as the company's image was pummeled by labor unions and lawsuits, research showed its fragmented giving generated little goodwill. The reason: Few people could remember exactly what -- or whom -- Wal-Mart supports. Now, it's giving its community outreach a sharper focus. "Society has changed," says Betsy Reithemeyer, executive director of the Wal-Mart Foundation. "If you are the gathering place of the community, then you have a responsibility to it."

In fact, some executives argue that a company should develop a social responsibility platform -- even if it doesn't add to the bottom line. In 2003, Wayside Cross Ministries, an Aurora (Ill.) shelter for abused women and men, couldn't obtain enough ground beef for meals. On hamburger days at Wayside, some residents ended up eating buns, lettuce, and tomato -- no burger. Then grocery giant Albertson's, through Jewel, its Midwest grocery chain, launched Fresh Rescue to boost supplies of perishable meat, dairy, and vegetable products for local food banks. The result: Last year, the Northern Illinois Food Bank supplied 386 shelters with 740,000 pounds of meat, double the number from the year before. The payoff for Albertson's: goodwill -- and perhaps a few more shoppers. "We don't look for any statistics," says CEO Johnston. "This has to be in the DNA of a company."

Even evangelists such as Nardelli stop short of saying that companies should divert money from other strategic priorities to support corporate social responsibility. But at corporations like Home Depot and GE, good works are being bred into Big Business. "It's just the right thing to do," says Nardelli. Good PR? Sure. Money well spent? The goodwill refund could be in the mail.

By Brian Grow in Atlanta, with Steve Hamm in New York and Louise Lee in San Mateo, Calif.


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