Business with Heart

UPDATED: September 5, 2011
PUBLISHED: September 5, 2011

They call them “los meses flacos”—the skinny months.

These are the times when the money runs out, the kitchen shelves stand bare and parents fret over how they’ll feed their children. It happens every year, as regular as the rains in Latin America’s coffee-growing regions.

The buyers in the industrialized world scratched their heads over the phenomenon, until they realized that the farmers had converted most of their land from sustenance crops to coffee fields. Further investigation unveiled other problems, such as inadequate storage that prevented communities from preserving foods bought when money and harvests abounded.

At the Vermont-based Green Mountain Coffee Roasters, a driving question became, “What does it mean to be born hungry in these coffee-growing regions?” says Michael Dupee, vice president for corporate social responsibility.

Green Mountain teamed up with similarly concerned players from inside and outside the coffee industry to examine and mitigate the problem of food insecurity in coffee-growing countries.

A half a world away, in Yonkers, N.Y., a very different kind of societal crisis played out: Ex-cons, recovering substance abusers and HIV/AIDS patients unable to get work were landing back on the streets or in jail or on the bottle.

Bernard Tetsugen Glassman, a Zen Buddhist priest and former aerospace engineer, decided he’d find a way to put these chronically unemployed to work—by developing a business of his own. Today, Greyston Bakery employs 50 people who crank out 28,000 pounds of brownies a day, primarily for Ben & Jerry’s Ice Cream. In addition, the company’s foundation supports 200 affordable housing units, two child care centers, an HIV clinic and an employment center.

“(Employees) will tell you that Greyston saved their lives,” says president and CEO William Mistretta.

Both Green Mountain and Greyston Bakery are early adopters of a trend that is sweeping America’s business community—the shift from wealth accumulation to, well, sharing the wealth. Just as they focus on ways their companies can increase efficiency and profit margins, CEOs increasingly are considering how they can leverage their companies’ expertise to create societal or environmental good.

The trend is manifesting itself in a number of ways, from Greyston’s social enterprise model, in which a company is launched specifically to solve a problem, to the Green Mountain model of corporate social responsibility, in which a firm dedicates money, time and expertise to benefit stakeholders, supply chain partners, employees, the environment and others it touches.

“It used to be that community relations and giving was a nice thing. Today it’s expected,” says Cheryl Kiser, the executive director of The Lewis Institute and Social Innovation Lab at Babson College in Massachusetts, which has been recognized for its leadership in the teaching and development of social enterprise.

What's Changed? Why Now?

Consumers are scrutinizing businesses more carefully. They’re spurred by the rise of Twitter, Facebook and “citizen journalists” who push content nonstop and are demolishing the barriers that once obscured corporate practices. These new media also have increased the clout of social activists who use them to extend their reach and intensify their pressure on businesses.

“You can’t get away with unethical behavior,” says Daniel Diermeier, author of the new book Reputation Rules and a professor at Northwestern University’s Kellogg School of Management, another campus leader in social enterprise.

Young people have changed, too, with millennials looking harder for the proverbial “purpose-driven life” and bringing that idealism to the workplace. Companies themselves are bending to those outside forces and also looking inward, contemplating how the well-being of communities can support business interests.

“You can’t have a healthy business in an unhealthy society,” Kiser says.

Thus comes the latest incarnation of corporate social responsibility. “The old model was make as much money as you can and give it away before you die,” explains Jamie Jones, the assistant director of social enterprise at the Kellogg School of Management.

Today, grant-making by proven and profitable firms isn’t enough. Corporate philanthropy is—or ought to be—active, far-reaching and conceived alongside the profit-making end of the business, experts say.

Harvard University’s Michael Porter recently coined a new term for today’s corporate social responsibility: shared value. In the January 2011 issue of the Harvard Business Review, Porter and co-author Mark R. Kramer suggested capitalism was “under siege” by growing societal mistrust. They wrote:

“The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.”

Porter and others say societal concerns remain tangential at many companies, though the seeds of the movement have clearly taken root.

“If these people can’t feed their families, they can’t feed their coffee plants,” says Dupee at Green Mountain Coffee. “We are trying to do work that connects to our business but has greater societal benefits as well. That is shared value.”

Those efforts range from addressing food insecurity—los meses flacos—to helping farmers add nutrients to “tired soil,” from providing scholarships to developing sustainable energy sources and encouraging employee volunteerism.

Consumers will also see companies like Campbell’s Soup setting goals such as “measurably improve the health of young people in our hometown communities by reducing hunger and childhood obesity by 50 percent,” or Walmart partnering with community colleges to educate local workforces, or IBM’s international “Reinventing Education” initiatives, or PepsiCo forging new relationships with rural Mexican farmers, ending the farmers’ northern hunt for work and helping the company cultivate new sources of corn and sunflower oil.

Done right, this new model of social responsibility can benefit stakeholder and corporation alike, aligning interests rather than breeding mistrust.

“A lot of companies are finding social opportunities along with economic opportunities,” says Kiser at Babson. “It’s been a real journey.”

A Matter of Reputation

If this all sounds altruistic, it is. But old-fashioned business interests are driving the trend as much as anything else.

“The reputational risks for companies have increased,” says Diermeier, the Kellogg professor and expert on corporate reputation.

Today’s consumers are better educated and more plugged in than ever. They’re cynical and likely to repudiate corporate “spin.”

They want to know not just about the products on the shelves but where those products came from: Were they made using child laborers? Have their foreign suppliers decimated the environment?

“If you are McDonald’s and you are using paper products, and the supplier has poor environmental practices, you will be in trouble, even if you didn’t cut down those trees yourself,” Diermeier says.

Even when companies operate within the letter of the law, consumers and social activists these days want more. A company can pledge that it won’t use workers any younger than say, 15—a good start, but not enough to appease some child rights groups, who will push the company further, pressuring it to build or fund local schools, for example. If a company doesn’t yield, they’ll take to the Net (social media are “turbo-charging” this practice) or stage protests until they get their desired outcome, Diermeier says.

“What these activist groups are trying to do is prevent these companies from coasting,” Diermeier says.

Companies benefit, too, of course. Consumers may be willing to spend an extra $2 on a Starbucks coffee knowing the baristas receive good benefits and the beans were purchased using Fair Trade standards.

Starbucks may reap that benefit, but lots of companies don’t. And that’s one of the biggest conundrums facing corporations looking to spin profit into philanthropy: Will the buyer support the endeavor by paying higher prices? To a large extent, the answer is “no,” or at least, “not yet.” Consumers, Diermeier says, are quick to punish companies but aren’t as quick to reward them.

Perhaps, though, for a public weary of corporate malefactions, giving without receiving will turn out to be a good thing.

The Rise of Social Entrepreneurs

The big multinationals talk about “shared value.” But there’s another growing class of executives looking to use their profits, expertise and clout to help people and planet. They are the “social entrepreneurs,” and they are establishing businesses with nonprofit missions and for-profit savvy.

“A business entrepreneur sees a hole in the market and fills it with a product to pursue profit. A social entrepreneur sees a hole in the world and fills it with a product or programs to pursue social change,” says Jonathan White, a sociology professor at Bridgewater State University in Massachusetts and board member of Me to We, a social enterprise that partners with Free the Children, an international child rights organization.

A sampling of such companies includes:

⇒ TOMS Shoes, which gives away a pair of shoes to a needy child for every pair of shoes sold. Founder Blake Mycoskie established the company after his travels in Argentina and observation that many children were going shoeless, exposing them to the threat of soil-borne diseases and prohibiting them from attending school.

⇒ Dr. Paul Farmer’s Partners in Healthcare, which has created a community-based healthcare model that started in Haiti and has been replicated around the globe.

⇒ First Books, under the director of attorney-turned-activist Kyle Zimmer, which has developed innovative ways of putting high-quality, affordable books in the hands of low-income children. First Books offers an online marketplace at which qualifying organizations can order deeply discounted books and a book bank where publishers can send unsold inventory.

The jump from traditional enterprise to social enterprise can be tough for some people. “When I came onboard 20 months ago, I was petrified,” recalls Mistretta, the Greyston president, who previously had worked for such firms as Hostess Foods and PepsiCo.

He had good reason. The way Greyston’s hiring policy works means no questions and no background check. Once your name hits the top of the list, you’re hired for the next entry-level vacancy.

Employees enter a one-year apprenticeship where they learn everything from baking brownies to showing up on time to work. If they last the year, they earn a permanent position.

There’s risk, of course, and turnover—the work is hot and hard and the jobseekers don’t exactly have a track record of good employment—but Mistretta says the friction is far less than an outsider would think. The employees monitor each other, and having lived through tough times themselves, can shepherd newcomers through the training.

The company’s motto: “We don’t hire people to bake brownies. We bake brownies to hire people.”

The "Y" Factor

Generational research suggests do-good businesses will only do better in coming years. The millennial generation, or Generation Y, will insist on it. These young people, born after 1980, are highly educated, wired, optimistic, engaged and globally focused.

They’re looking for jobs that incorporate their values, or in the case of the social entrepreneurs, creating businesses that spread those values.

Business schools are leading the charge, embedding courses on social enterprise throughout their curricula and preparing the next generation of leaders for an increasingly complex, fast-changing, unpredictable—and value-driven—landscape.

One metric is the Aspen Institute’s “Beyond Grey Pinstripes,” a biannual ranking of business schools based on how they prepare MBAs for social, environmental and ethical stewardship. Between 2007 and 2009, the number of schools offering courses in social entrepreneurship doubled. “It’s a huge indicator,” says Nicole Buckley, the survey’s program manager.

What’s more, the courses have migrated from environmental management, entrepreneurship and corporate social responsibility departments to classes focusing on human resources, organizational behavior and management, extending the reach of these ideas, Buckley adds.

“It adds layers of challenge when you add social impact and societal change,” says Mary Gale, an adjunct lecturer in the entrepreneurship division at Babson College. “But I think that challenge is healthy and good.” Gale this fall will teach a course called “Living the Social Entrepreneurial Experience,” a hands-on class that will allow students to experience what it’s like to establish a business with a social entrepreneurial bent.

Schools are minting executives with all sorts of radical plans. At Kellogg, for example, a new $80,000 fellowship will be awarded this year to an entrepreneur who embarks on a social enterprise that can prove its societal or environmental impact and its own sustainability. In the meantime, the college has offered smaller grants to help students test-drive their socially motivated concepts.

The school, which features the Social Enterprise Program or SEEK, has helped cultivate a community of up-and-coming social entrepreneurs who have launched companies that are tackling global problems, such as human waste and grain storage issues in India.

Josh Engel, who completed his MBA at Kellogg this year, is among this new breed of executives. “I came to business school looking to work for mission-driven organizations,” he says.

At Kellogg, Engel helped launch an idea incubator, at which students pitched ideas, offered critiques and shared resources. That’s how he met Swapnil Chaturvedi, a management student with an engineering background, who wanted to attack two big problems in India’s slums: lack of electricity and lack of sanitation. The two brought in a third partner, Bryan Lee, who was also an MBA candidate. From their classrooms in Chicago, they faced a tremendous challenge: How do you deliver products and services to people who are living at the bottom of the pyramid?

“There are more cell phones than toilets in India,” Engel says.

Even so, slum residents had little means of powering those phones—or anything else.

With grants and startup funds, the trio launched San + Co, a sanitation firm that converts waste into energy. It works like this: Subscribers pay a fee for use of a portable toilet. Every three days, a San + Co employee picks up the waste, inserts a clean collection cartridge and drops off recharged batteries—powered by the methane gas emitted from that human waste.

As of June, there were 50 families enrolled in the service, which is deliberately priced to cost a family less than a public toilet fee. Engel says they hope to expand to 1,000 soon.

“We’re trying to find that sweet spot where we can generate revenue but still keep it affordable,” he says.

What's Next?

Make no mistake: Whether a company is seeking to share its value or create a business to alleviate a problem, the work is fraught with risk. Profits are diverted, shareholders must be appeased, and in international communities there are cultural divides to bridge and foreign governments to navigate.

“I guess it sounds really simplistic, but it’s hard. It’s hard to navigate these things,” says Dupee at Green Mountain.

Questions abound: How do companies really measure their impact? What’s the methodology? Are companies doing behind-the-scenes harm that’s obscured by well-marketed public good? Will companies really be willing to shave off their bottom lines in order to improve life for employees, the public, the planet? Or, does Milton Friedman’s dictum still hold true—that the social responsibility of business is to increase its profits?

Those who are more optimistically watching the trend, however, predict a continued blurring of the for-profit and nonprofit sectors as executives rethink their corporate missions. To some, this whole movement is nothing more than a return to traditional hometown values played out on a global scale.

“I think we can see the possibility of change through social entrepreneurship,” says White, the sociologist. “I think a social entrepreneurial model can revolutionize the way businesses interact with human beings and the environment while still seeking profit.”

Take a social responsibility quiz for your business, and find out how you can do more.