Behind-the-Scenes: Developing the Theory of the Virtuous Organization
The purpose of this segment is to draw back the curtain and show some of the “making-of” of the initiative, and hopefully encourage you to add your piece. The project is highly collaborative, relying on various diverse and often dissenting opinions.
The following is taken directly from class notes and subsequent correspondence with professors.
Note: I’m going to use the term “virtuous organization” for clarity.
Observation #1: The generalness and ambiguity involved in quantifying, measuring, and defining values may prove to be too foreign and therefore not helpful in a hard data-driven business world. (But don’t think we should throw it out! Just wait!)
However, if we get too specific on the other hand, there’s equal risk that our guidelines regarding values won’t be applicable in every context.
It’s becoming more and more clear that we need something general and specific.
Observation #2: Our theory of the “virtuous organization” mirrors a pattern for growth and development taught in the Gospel which may actually be the underline principle we’re looking for.
In the Gospel (and other resources), we see a pattern for lasting personal growth and development, and therefore likely applicable to corporate growth. Growth begins first with a change of heart (the inner vessel) which results in a change of behavior (outer vessel, for all intents and purposes). Changing behavior before the change of heart is generally insincere and rarely lasting.
Up until now, we’ve approached this theory without differentiating between the “heart” and the “behavior” – the inner and outer vessel. Perhaps it makes sense to differentiate the inner core values of a company from the outward behavior or strategy, acknowledging the importance of both.
This could clear a space for potential ambiguities in value definitions as well as simplify the way we’re thinking about this whole thing.
So, for example…
I’ve taken a stab at both defining “inner” and “outer” vessel, as well as dividing our class deliverables into either category. (The terms “inner” and “outer” are just the most intuitive I could come up with right now.)
The Inner Vessel of a Virtuous Entity
Elements of this aspect might include everything that has to do with the internal workings of the company, such as culture, mission, values, etc. These are generally not measurable or quantifiable and are never concretely attained.
Chapters of the Book for the “Inner Vessel” Aspect:
The Mission and the Deep Why
This is a very internal motivation.
People (but only some of them)
Employees or individuals directly tied to or working inside the company
Profit: the Principle of Prosperity
Benefits the internal company
A value that the company embraces
Product Mix (but only the purely ethical aspect of it)
Here we can debate to the nth degree whether a given product is ethical or not.
Another value, but it could be argued that this is in the other camp.
The Outer Vessel of a Virtuous Entity
This has to do with a company’s outward behavior as a result of its internal culture and values. The outward behavior is classified by anything that has a direct impact on the community outside the company. This would generally be more measurable, quantifiable, and “business-like” as we know it.
We could consider using the law as a standard of ethics when developing this theory simply for clarity, measurability and concreteness. I know it’s the lowest common denominator, but I’d say that any business that is at least legal could theoretically develop or convert to a business strategy that promotes societal common good.
(Out of all the theory that we’ve developed so far, I think this aspect is the most under-developed, at least from what I know so far.)
Chapters of the Book for the “Outer Vessel” Category:
The Product Mix (the impact it has on the environment or the outside world)
This evaluates not if the product is ethical, but if it’s valuable in the marketplace. It has more to do with the business strategy/economical/supply and demand aspect than values.
This is kind of a catch-all term, but as far as I can tell it has something to do with a corporation’s responsibility to the community and considerations like environmental impact, both of which affect the outside world.
People: Individuals outside the company like channel partners, buyers, consumers, etc.
Anyone outside the company
Now, here are some chapter ideas we haven’t talked about yet. These chapters would require substantial research on business strategy but also on current social ills in various fields.
Business Strategy: A Bond Between Profit and Impact
How can the business strategy be such that profits increase with social impact? How can we directly link those? It’s almost as if a strong cooperation “adopts” a social problem and impacts it with its strength.
Partnership with a (specific) Social Ill or Organization
What specific social ill exists in the world outside the company that the company can impact with its greatest strengths? It must be aligned with the company’s mission.
Note: While the “inner vessel” can never be truly quantified, measured or numerically evaluated, a concrete measurement might be possible with the “outer vessel”.
For instance, one can’t quantify one’s “goodness” or “virtuousness” of heart, but can definitely quantify and measure business strategy and results. While we couldn’t offer, say, a recognition or certification for the “internal” virtuousness of a company, we could potentially certify or at least standardize a business strategy, if that’s something we’re headed for. Interesting thought.
If this delineation is actually helpful and a potentially intuitive organization strategy, what if we formed two research teams, one for “inner” and “outer” vessel and divided and conquered?
More internal value/ethics/culture/mission considerations could be tackled by one group and then the more external/business strategy by another.
I could see our professors leading one or the other based on their areas of expertise 🙂
However, if nothing else, I hope this suggestion further delineates how different these two aspects probably are, even though they directly influence each other.
And now, BONUS material 🙂 haha….
Surprise! It’s a chart.
State of heart
Social ill solutions
There’s obviously more here. Any thoughts on this idea? I’m not sure how this would exactly look organization-wise or maybe it’s just a helpful way to think about it. I chatted with Ann and Joel in class on Tuesday and they totally caught on. Hopefully it also make sense in writing, haha!
Further developing the theory of the virtuous organization by categorizing into various categories, as if they were personalities in relationships.
It’s still difficult to classify, quantify or concretely evaluate an organization’s “virtuousness” despite our definitions and work up to this point. Some ambiguity in evaluating an organization is inevitable because we’re dealing with values. However, a more definite rubric or “measuring stick” will probably become even more essential as the research progresses.
The relationship between profit and social impact might be counterintuitive but essential to the project of creating a virtuous organization. “Profit” still might have a bad connotation.
It’s been useful up to this point to look at this project through the lens of other disciplines.
Therefore, here’s a look at our virtuous organization theory through the lens of relationship psychology. Hopefully this offers another way to 1. conceptualize our theory and 2. Proposes a framework for evaluating and classifying an organization’s virtuousness.
The Virtuous Organization’s Relationship with the World
We’ve established in class that the organization/business has a responsibility to the society or even the world to which it belongs. There’s a sort of connection there between the organization and society–a relationship of sorts.
The organization/society connection fits into the definition of “relationship” itself: relationship n. “The way in which two or more people or things are connected”. Both are very connected. So, the players in this relationship would break down as such:
Party 1: The Organization/Business
Purpose: Maximize shareholder profit (I know we’ve kind of debunked this idea, but for the sake of this argument and for simplicity…). However, maximizing shareholder profit isn’t always ethical or desirable. Sometimes maximizing shareholder profit can damage society.
Party 2: Society/The World in General
(The following is pretty optimistic, but go with me here…)
Purpose: Achieve an environment/community/system devoid of social ills. However, solving social ills is expensive and complicated.
Therefore, perhaps we can look at the virtuous organization theory as if we were a relationship counselor or psychologist (haha…), evaluating how the organization reacts to and interacts with the society to which it belongs.
Relationship Psychology- Definitions and Why This Matters
A relationship counselor would know that there are 4 basic types of relationships: independent, dependent, codependent and interdependent. Some of these are more beneficial and happy than others. It’ll become pretty clear which those ones are.
(Note: I’m actually not entirely sure what discipline this next part belongs to, so I’m using “relationship psychology” in this project.)
Both parties are separate and self-sustaining, relying on their own ability to provide for themselves. Both parties are concerned solely for the success of themselves sometimes at the mercy of the success of others.
Example: Roommates who both pay their share of rent, have their separate jobs and schedules, but live in the same place. Neither are overtly cared about the other’s success.
One party relies on another being unable to achieve support or success on their own for whatever reason. This is generally a mutual agreement between both parties.
Example: A parent providing housing, food, care etc for a young child.
One party relies on another for support they could provide themselves on their own. One (or both) parties meet their needs though manipulation and control of the other party, generally in the name of selflessness.
Codependency Subcategory 1: The “Parasite”
This codependent is dependent on another even though he/she could provide.
Example: A husband who sits at home unemployed and rent free, watching TV all day while his wife works 3 jobs (195).
Codependency Subcategory 2: The “Host” (sometimes known as the “emesher”)
This codependent supports the other party in codependency and laziness. Generally, the one providing the support is addicted to the feeling of being needed, but in a twisted, immature way.
Example: A wife who works 3 jobs while her husband brings home not one penny, but yet he continues to eat, watch television and live rent free (195). She doesn’t stand up for herself and set boundaries or express her needs.
Anytime codependency is involved in a relationship, both parties are codependent to some extent. One party will inevitably support the other in their bad patterning and therefore perpetuate codependency.
Note: Apparently in psychology,“codependency” is kind of a catch-all term that encompasses many things. I’ve just provided a very simple definition and examples that I thought would be most clear and beneficial.)
Interdependent relationship (Hint— THIS IS THE GOLD):
Both parties provide for their own needs, but collaborate to reach a higher level than they could alone (the whole is greater than the sum of its parts). Both parties want their personal success and the success of others at the same time. Interdependence is generally considered the best, most fulfilling and advantageous relationship.
Example: A functional marriage where both parties are unified but maintain their sense of self and identity, and work together equally in their strengths for the good of the family.
Example #2: Two people doing partner arch rappelling. Both people harness together (not clip into the rock) and back off an arch on separate sides. Each other’s weight keeps them from falling to their deaths as they work together to lower themselves down to the ground.
Relationship Psychology Applied to Virtuous Organization Theory (oh snap…)
So, could we categorize businesses as independent, dependent, interdependent and codependent (or something along those lines)? If we could, it might open up a whole new way to to classify businesses. Here’s a stab at it.
High profit + low social impact
This organization is completely self-sustaining and profitable, but doesn’t greatly benefit or fix any social ills using its signature strengths. It’s as if it does neither great harm or great social good outside of its marketplace offering.
The idea of an independent organization (or even a relationship) is kind of an illusion, however, because every party is reliant on someone or something else for survival to some extent. This organization would be entirely self-sustaining, but still “rely” on its consumers, investors, etc for income. The only difference here is that the company isn’t “giving back” at the same time, but isn’t leeching funds off another company either.
Example: Basically any company that’s self-sustaining but doesn’t mobilize its signature strengths to solve social ills.
This isn’t a bad place to be, but rather untapped potential.
Low profit + high social impact
Unlike the independent organizations, these are dependent on other profitable companies/entities for financial support, but also have high social impact. I’d imagine that lots of non-profit organizations fall in this category–any organization that is productively working to better society but doesn’t financially sustain itself at the same time.
Example: Any non-profit that relies on government grants, etc for survival.
This isn’t a bad way to function, but it’s not the most efficient way to function. This kind of organization perhaps has the highest potential to lead to an even more efficient kind of organization.
Low profit + low social impact
Ouch. This should never exist. I’m not entirely sure how this would play out in the real world, but here’s a stab at it.
Subcategory 1: The “Host”
This would be a profitable organization (maybe an independent one) supporting a non-profit for ulterior motives such as only for a marketing campaign or a front for something else. This organization would be less concerned with actually impacting society and more concerned with benefiting itself, perhaps even at the cost of society.
Subcategory 2: The “Parasite”
It would have to be a corrupt non-profit– corrupt in the sense that its using its funds from profitable entities dishonestly. Perhaps it could sustain itself but chooses not to, or it could also be flat-out harming the society it’s supposed to fix.
Probably many illegal businesses could fall into this category, but not all “codependent organizations” would be illegal. I’d imagine that, similar to person-to-person relationships, all organizations have some form of codependency on some level or another.
High profit + high social impact
This is where the gold is. This would be an organization that mobilizes its signature strengths to make a profit but also impact society at the same time.
Example: The Other Side Academy. The act of curing a social ill makes this company profitable.
The “interdependent organization” isn’t to be confused with the other types–
It’s NOT independent: this organization just as independent as an “independent organization”, but it’s not just self-benefiting; rather, its growth is tied to the growth of its social impact. It’s concerned for the success of not only itself, but the world outside too. Also, it’s an illusion that one organization or relationship is completely independent, anyway.
It’s NOT dependent: it social impact efforts are “funded” by the same strength/strategy that makes a profit. A dependent organization, however, could conceivably elevate into interdependence, or just as easily deteriorate into codependence. It’s CERTAINLY NOT codependent: codependency is the counterfeit of interdependence. Again, interdependence is that the organization wants its own success and the success of the community at the same time. A codependent organization would be concerned with its own success but through the behavior means of another organization. Note that it doesn’t compromise its profitability in any way.
That’s a slippery slope because it’s dealing with values. However, it may be possible to measure some things, especially if only considering the “outer vessel”. I wonder what would happen if we grouped businesses into categories similar to those above. Would that be easier to evaluate when considering not just an organization’s values or mission, but how it outwardly behaves with/in society? That might be more concrete.
Next Steps and Questions:
The categories above could also provide more direction in the next steps to developing virtue or interdependence. The goal is to get to interdependence from wherever the company might be on the grid. I wonder what parallels there would be in relationship theory from moving out of codependency and into interdependence. Psychologically, it takes substantial “re-wriring” to create an interdependent relationship from, say, a codependent one and sometimes is near impossible.
“Our aim is not to do away with corporations; on the contrary, these big aggregations are an inevitable development of modern industrialism, and the effort to destroy them would be futile unless accomplished in ways that would work the utmost mischief to the entire body politic. We can do nothing of good in the way of regulating and supervising these corporations until we fix clearly in our minds that we are not attacking the corporations, but endeavoring to do away with any evil in them. We are not hostile to them; we are merely determined that they shall be so handled as to subserve the public good. We draw the line against misconduct, not against wealth.”
This is an excerpt of notes from Professor Eva Whitesman regarding defining the virtuous organization.
“Let them judge you, but remain virtuous.
Let them criticize you, but remain wise.
Let them misunderstand you, but remain kind.
Let them hate you, but remain exceptional.”
― Matshona Dhliwayo
There are a great many good people and organizations that share our vision: A world in which organizations are worthy of admiration.
Though we invoke the term virtue in order to suggest the highest possible standard of admirable performance, we have no interest in arbitrating among different types of values. We understand that values are always in tension, that different people value different things, and that values that some hold dear may be antithetical to the values of others.
What we do care about is value. A virtuous organization adds value to humanity by serving humanity’s most basic needs.
when we talk about organizational virtue, we are not talking about companies that embrace the same set of values that we would also embrace. Rather, our expectation of virtuous organizations is that they:
1) are organized in a way that contributes value to the world,
2) they know what that value is, and
3) they are true to it.
This book is for leaders in ordinary (and extraordinary) for-profit businesses.
This book is for people whose products or services are not necessarily viewed as obviously prosocial, charitable, or inherently “good” in any traditional way. We believe that it is possible for seemingly ordinary organizations to do extraordinary good.
We believe that organizations are living, breathing things. Just as cells in a body organize to create organs and systems, and ultimately a consciousness, we believe that organizations are more than the sum of the individuals that comprise them.
What we mean by virtuous organization:
Organizations can be virtuous even if they are not “social businesses” or organized specifically to improve social welfare. We believe that all business can be a force for good.
We believe that doing good is different from being good. We want organizations to be good.
We believe that every organization can be more virtuous, no matter how good they already are. Virtuous organization is a developmental approach, always striving for more and better ways of organizing for more positive outcomes.
You don’t have to be a nonprofit, government, or social enterprise to be worthy of admiration. Business exists because it has the potential to create good in society. We want to help businesses–and business as a whole–achieve that vision.
Virtuous organizations do not form by accident, just as people of weak character cannot develop strong character overnight or without desire to change. Aristotle wrote that the “state of character arises from the repetition of similar activities,” which illustrates the purposeful transformation from being an organization that achieves good in an asystematic way to an organization that embodies virtue in every policy, practice, product and program.
When you hear the word virtue, what comes to mind? For some, it may bring up the classical cardinal virtues or some aspect of religious piety. For others, perhaps the concept of virtue ethics or an image of a saintly someone you know. Regardless of what you think of immediately, we’re guessing that business isn’t the first thing to come to mind. In fact, it may even seem to you that virtue and business are incompatible. We’re here to change your mind – and show that virtuous organizations can exist, what they really look like, why they matter, and how you can lead, create, or be part of one.
Perhaps you’re thinking that organizational virtue sounds a lot like corporate social responsibility. In a way, you’re right – virtue involves using organizational resources to make headway in reducing negative externalities and improving opportunities for vulnerable people. Much of this is covered in social impact functions in leading organizations today, and we salute their efforts. But alone, CSR is not enough. It can’t mitigate negative people practices internally or save a business that has unethical or dehumanizing practices deeply entrenched. Virtue is about a comprehensive identity for good within and without an organization – a consciousness of contributing more to all stakeholders. And an acknowledgement that the why and how of an organization matter as much as the what.
At its foundation, virtuousness is about congruence. Congruence in the mission, values, practices, products, leadership, philanthropy, and culture of an organization. Too often, CSR has been hijacked as a tool companies use to rehabilitate an image after a damaging scandal or when they garner criticism for failing to “give back” after having received so much from a community.
Whether you’re an idealistic student, a budding entrepreneur ready to build, or a seasoned decision maker in a large organization, this book is for you. We each have a role to play, and the great thing is that we can start where we are. This book is primarily aimed at organizational-level decision making and how individuals can use these principles to move organizations to a greater sphere of virtuousness, wherever they start.
Becoming a virtuous organization is not something that just happens overnight (even for organizations just starting out). Creating a virtuous organization is an evolving process that takes time, commitment, and dedication. As you read this book, if you find yourself becoming hopeless or overwhelmed, take a moment to breathe, remove judgement, and be present with the fact that by even picking up this book and reading it, you are taking the very first step to making your organization better.
I am writing this book because I believe there are so many noble and generous solutions in the private sector. There are synergies and efficiencies to create and expand. And there are people to help. This book will be a success if organizations use their capacity to create a more virtuous landscape for their employees, consumers, stakeholders, community, and the planet.
Collectively, when we tried to grasp hold of an endpoint–a single definition of what it meant to be virtuous or good or noble as an organization–we quickly found ourselves mired in impossibly diverse contexts, conflicting value sets, and irreconcilable debates. But when we focused on principles, with the central concept that any organization could improve, and that any leader within the organization could implement certain key ideas that would bring about that improvement, we all clearly saw the vision for a way forward.
It’s tempting to look at these stories and say something like “doing the right thing pays!” For those of us trained to see things in terms of cause-and-effect, certainly these results matter. They signal demand for good practices in the world of business.
But there is a deeper message: It is possible for an organization to be good.
There is a common misconception in our society that nonprofit organizations and social enterprises are naturally virtuous and traditional for-profit organizations are more inclined to be non-virtuous. In fact, as one member of our team sought to transition from the nonprofit sector to an impactful role in the private sector, she frequently found people asking her why she was giving up on her values and moving over to the “dark side.”
All organizations have the potential to be either virtuous or non-virtuous. We’ve witnessed inhumane layoffs in small, local nonprofits and meaningful mission alignment in large multinational corporations. We’ve seen value-driven decisions and seemingly value-absent decisions in every type of organization imaginable.
Necessary evil trap
Sometimes a whole system has been built around a product or service that causes harm in isolation. The problem is that removing the harmful item would also cause the entire system to crumble, causing more harm in the remedy than in the ailment itself. The trap is that we fool ourselves into believing that this paradox requires that we accept the necessary evil as irreparably ensconced in our system. Just because it would take a great deal of effort by many people over a long period of time does not render a task impossible, nor does it decrease the value in making the effort.
So how do we deal with a necessary evil? The first thing is to create alternatives. Options create choice, and one of the core principles of the virtuous organization approach is to honor agency. By working to create alternatives to the necessary evil—usually through active innovation.
The next step is to introduce viable and less harmful alternatives to the product mix alongside the necessary evil. For example, companies that rely on fossil fuels to power our economy can introduce ever more sustainable alternative energies to their product mixes.
Almost universally, newer technologies are more expensive than existing ones. Often, the cost of new infrastructure and not-yet-optimized processes result in higher prices, disincentivizing the introduction of newer, less harmful technologies to the product mix.
The key is to decrease the price of the new technologies—at a loss, if necessary, subsidizing with other products—in order to stimulate demand. And increase the price of the more common but harmful technology. This better reflects the full social cost of each product, and the increases in cost for the harmful product will both subsidize the new technology and incentivize more early adoption demand for the more sustainable, less harmful product. Essentially, you would be subsidizing the new tech with the old tech, while taxing the old tech. Internalizing the regulatory
The third way principle—create alternatives
The accounting trap and the do no harm principle
In dealing with tradeoffs, one of the challenges we run into is the accounting trap. Generally in accounting (and this is a gross oversimplification), deficits in one area of a business can be offset by credits from a different area of the business. If we experience losses in the pants division of our clothing company, for example, but our shirts division performs particularly well, the revenue from the shirts may cover the deficit in pants sales, and our company overall may still have a positive financial balance at the end of the day.
The problem with applying accounting methodologies to our calculus of virtue, however, is that no amount of philanthropy or community engagement can cover a deficit in environmental harm, or make up for systematic discrimination, or repair corporate violations of the public trust.
Too often, philanthropic and prosocial efforts of companies have sought to make some form of reparations for the harms otherwise created by the organization. As though the company is trying to purchase goodwill, forgiveness, and redemption.
If we are accounting in value terms and not in money, it makes no sense to continue supporting parts of the company that continually yield deficits—rather than credits—in the good they create for the world. Particularly since in accounting for value, good cannot overcome harm.
Utilitarian calculus would suggest that so long as we produce enough good in one area to outweigh the harm in another, we’re in the ethical clear.
But virtue ethics suggests that there is no balance between harm and good—we want to become the sort of organization that does no harm, and maximizes good. It’s not about the end result, it’s about the integrity of who we are as an organization, and who we want to become.This suggests that to overcome the accounting trap, in any area of endeavor, we must adhere to the do no harm principle. We do not offset harm or justify harm or buy our way out of harm with other good works. No, we work toward remedies that will reduce and ultimately eliminate the harm we have created in any and all areas of endeavor. In other words, we need at least a zero balance in all of our accounts from everything we do as an organization. And if we aren’t there yet—if we have a negative balance in some area from the harm we are generating—we need to actively work on remedying those problems.
Entrepreneurs don’t have to wait until business is booming to make a positive difference in the world.
You’ve likely noticed that “corporate social responsibility” or “corporate social impact” are gaining speed as business buzzwords. In contrast to the 9-5 workday boomer generation, millennials don’t just want a consistent paycheck, they also want to participate in a social mission,. Similarly, many business owners are debunking the Friedman doctrine preached at business schools, that a business’s only social responsibility is to maximize profits for its shareholders. Organizations like B Corps, Oxford’s Economics of Mutuality, Harvard’s Shared Value Initiative, Conscious Companies, and many others are not only actively poking at and enlarging the manifesto’s theoretical holes, but also waking up to private industry’s unique position to do more good in our societies than perhaps any other type of organization.
As an entrepreneur myself, I’ve dreamed that my own business will grow large enough to impact the world, but quickly felt discouraged about how far I have to go before I open a non-profit for the homeless or donate millions to cancer research.
Until recently, I didn’t realize that I’d fallen into what I’ll refer to as the “Friedman Trap,” referring to the famous Milton Friedman whose ideas still fill the minds of MBAs today. Friedman advocated that a business’s only social responsibility is to maximize profits for its shareholders, and leave the do-gooding to individuals however they saw fit. This notion breaks down on a few levels, but perhaps the biggest is Friedman’s assumption that we exist in a perfect market with no market failures, no imperfect information, and no irrational stakeholders. All these factors call for something more than simply maximizing profit.
Private industry is generally cast as the bad guy in social-good circles. After all, aren’t they the ones that cause the pollution, the massive power grabs, and the corrupt policies? I don’t disagree that businesses have misused their power to damage our economies, societies, and perhaps the planet at large, but it’s precisely that power that could be also harnessed for good. In fact, in light of the current social reality, a business’s power must be mobilized for good.
What if businesses didn’t have to wait until they were wealthy or even in the black to do good? What if I told you that there are millions of businesses today that are maximizing their social impact and still gaining more and more of the market share each year? In effect, they’re demolishing Friedman, and not just in theory, but in practice.
Along with organizations like B Corps and Oxford’s Economics of Mutuality, a group of researchers at Brigham Young University have studied what they have currently termed “virtuous organizations” — businesses that combine their core competencies with their social good missions. They strategically mobilize and align their signature strengths to create social value. The vision is thus— that for-profit organizations make a significant social impact without minimizing profits, if not generate greater profit as a result as customers reward ethical and social value-creating companies. We’re talking about something deeper than charity campaigns or even non-profit partnerships. We’re talking about creating businesses who do good through what they do best–business.
The research into these businesses is continuing, but the following is a synthesis of the common threads we’ve seen though virtuous organizations. Even better news, is that these are things you can likely put into practice in your business today.
Now, a huge disclaimer: These practices will only work if your business has something that many businesses claim they do, but they really don’t—a mission reflecting their deep purpose. A company’s deep purpose is typically articulated through their mission, vision, and values. When a company rigorously and strategically aligns to their deep purpose, they can create more social value through their typical business actions and additional strategic initiatives.
And without further ado, how to embed social value creation into your business even before it’s profitable: how to make a significant social impact even if your business isn’t profitable yet.
Probably due to the Friedman doctrine, many businesses’s first instinct is basically to look everywhere but their own operations when considering advancing a social cause. However, from our research, evaluating one’s own businesses is exactly the right place to start. Imagine if businesses everywhere reinvested their charity budget into first making sure they’re not actively perpetuating the problems they’re donations are meant to solve. Amazon’s workforce impacts how many families exactly? Walmart emits how much carbon annually? How many clothing brands still outsource to sweatshops? No wonder business is the bad guy in so many social good circles. And then these same businesses try to support organizations solving problems the businesses themselves are actively contributing to. It’s like frantically failing to sponge up the drips faster than the jug can spill. Just stand up the overturned jug. Charity initiatives that do otherwise by reaching outward first before acknowledging the problems within reek of hypocrisy and empty virtue signalling.
Fortunately, entrepreneurs can start the habit in the initial stages of their businesses to minimize social damage and even maximize social impact. Here are a few businesses who have taken the challenge…
Patagonia is an outdoor apparel company who, from the beginning in 1973 actively committed to honest corporate social responsibility with the montra, “you can’t make good products in a bad factory.” Patagonia was and is fighting an uphill battle with such a resolution, as the clothing industry is known for outsourcing their production to factories or “sweatshops” in developing countries, even still today in 2020. Such sweatshops relying on inhumane working conditions, and inexcusable wage minimums, and even child labor in some cases.
Patagonia seems to be setting a new trend by both outsourcing to ethical production entities as well as even making such entities more ethical through training, and other resources. They, like any organization, they aren’t perfect, but they’ve made a step in the right direction toward integrating their core business processes and competencies to a social cause.
Examples such as these might be inspiring, but it’s unrealistic to assume that we can all incorporate such principles into our own businesses right-off-the-bat. In a perfect world, every process and procedure of our businesses would be designed to do more good than harm. However, at the risk of biting off more than we can chew, here are some good first practices the team has found, a sort of level-one starting ground that all businesses can incorporate to identify needs in their own businesses:
Allow Uncompromising Transparency
Economists will tell you that information asymmetry (when the seller knows something the buyer does not, or vice versa) might temporarily profit the party in the “know,” but is said to eventually lead to market failures. In our economy, the blame rests more on the business, because It’s more often that sellers know more about their products and its strengths and deficiencies than buyers do.
Provide honest information about your product offering.
Provide warranties, guarantees, and refunds in case of defective products
Participate and promote crowd-sourced ratings such as google reviews, Yelp, or other review engines.
These suggestions are easily-implementable for most businesses, and if executed thoroughly, contribute to a groundwork of honesty and fairness that promotes long-term economic prosperity. Not to mention, they also generate good will for your own institution, which in this day of increased buzz around corporate social responsibility, is invaluable.
If you’ve ever gotten a Christmas card from your dentist or realtor, you’ll know the opposite of what I’m talking about here.
Although businesses would literally wilt and die without people, it’s easy to see people as objects or means for an end, both with employees and consumers. Seeing people as individuals requires a conscious effort, especially when personal contact is minimal, or if there are many stakeholders to consider in an organization.
However, brands who make the effort to humanize their interactions often reap financial and economic benefits, and very likely more so in coming years. For instance, many corporations now incorporate principles of what’s called “brand humanization” when interacting with the public. Brand humanization is exactly what it sounds like: the act of creating and promoting content to seem as human and relatable as possible. Brand humanization is especially apparent in social media content, serving to remind the customer (and the cooperation) that there is a real person on the other end of the line.
Our research has uncovered a few key practices businesses could incorporate to humanize interactions:
Business to consumer:
Be human in ad and social media content, for instance, many brands have found behind-the-scenes content to help humanize their cooperation and create a more authentic relationship with their customers.
Treat your consumers with the highest level of respect. A popular leading internet marketer challenges his followers to view their customers as a “mysterious stranger” financing your and your family’s purchases, home, car, recreation, and literally everything else, because in a very real sense, they are.
Avoid needless token acts of goodwill that don’t have the customer’s needs at heart, such as fluffy christmas cards or impersonal birthday greetings.
Align your business with a social cause thus offering employees the personal benefits that accompany charitable donations and service.
My team, hundreds of other organizations, and myself are essentially calling for a reconceptualization of the private industry, and you as an entrepreneur are on the forefront of that change. All too often, for-profit businesses are cast as the bad guy instead of the hero. For-profit business is not the enemy, it’s our greatest chance at change. Not to minimize the damage for-profit businesses have done in the past, but conceptualizing business as the greedy monster polluting our rivers and oppressing the poor is to fixate on the darkside, a dangerous characterization. Dangerous for not only our society, but you—you as a business owner. Divorcing social change from your business would not only squander your own potential to be an active part in social impact and the personal benefits that would enrich your life through service, but also squander the massive potential your business has to do good in the world, even if your business isn’t yet profitable.
The truth is, we’re cheering you on. We hope to be a positive voice in your favor amidst the slander against corporations, and the rampant disbelief that businesses can do any good in this capitalistic society. The truth is, they can, and now they must.
We need entrepreneurs like you to join us in not only creating profitable, honest institutions, but also fundamentally good ones, healing ones, that are an asset to our communities instead of a burden.
Dive Deeper into the Initiative
This is our passion. We study how businesses can make a positive difference in the world. Stay on board with us to learn more about how your business can contribute positively to the world.
Behind-the-Scenes: Developing the Theory of the Virtuous Organization
The purpose of this segment is to draw back the curtain and show some of the “making-of” of the initiative, and hopefully encourage you to add your piece. The project is highly collaborative, relying on various diverse and often dissenting opinions.
The following is taken directly from class notes and subsequent correspondence with professors.
These are a few thoughts that your discussions inspired! I know there’s never enough time in class, so I wrote a few out.
TWO OBSERVATIONS AND TWO DEFINITIONS OF A “VIRTUOUS ORGANIZATION”
Observation #1: Endeavoring to classify a company’s product or service as “virtuous” or “vicious” leads down an endless rabbit hole of ethics that the legal system professionally tackles for us anyway.
(Example: McDonalds might be termed “virtuous” because it’s technically in the “family fun” industry. A cigarette company would not be “virtuous” because it’s life-threatening. However, heart disease due in large part to fast food like McDonalds kills more Americans every year than tobacco. Which one is more virtuous now?)
Big Potential Game Changer: What if we abandon trying to classify a product itself as “virtuous” and instead just be satisfied if it’s legal. If it’s legal, then for all intents and purposes it’s virtuous. Leave it at that. Professional legal debates go on all the time about if a product is okay for the market. Why would we try and re-invent that process? Just being satisfied with a product’s legality would save us time and free us up to move onto more concrete considerations such as…
Observation #2: What if we define a virtuous organization having less to do with the abstract internal values of a company and more to do with a company’s impact on social ills?
Check out this very well-crafted sentence by Alyssa:
“…instead of creating do-good off-shoots, take what [companies] are already great at and ensure it’s strategically aligned to benefit and grow the value system of employees, communities, consumers, stakeholders.”
“You take what you’re already great at” and do good with it.
That means that the company shouldn’t have to create a separate foundation, change its product line or even be less profitable for having donated money. AT ALL!! The company uses what made it great to maintain its profitability and at the same time lift the community.
Here’s a stab at the definition of a virtuous organization:
Virtuous organization: a profitable company or enterprise whose business model includes and relies on social impact in their major processes.
An alternative might be—
Virtuous Organization: a business or enterprise whose social impact is 1) tied to its profits and 2) inherent in its business model.
Okay, so basically there’s two parts to this equation:
The profitable company + the social ill = a virtuous organization.
(By social ill, I mean a problem with injurious consequences on society– poverty, prisoner abuse, illiteracy, human trafficking, etc)
Example #1: The Other Side Academy
Note: I know that this is a non-profit, but it’s a profitable non-profit whose business model demonstrates the above definitions.
The academy is a residential treatment facility where ex cons can go to change their lives free of charge. The company does not rely on any kind of outside funding and is completely self-sustaining through their business ventures. These include a moving company and a thrift store. The students are the sole employees of the moving company and the thrift store as an important part in their rehabilitation and training. Therefore, the more profitable the businesses are, the more residents the Other Side Academy can admit into their school. The company’s profits are tied to their social impact.
Example #2: Cotopaxi
Cotopaxi’s suppliers are farmers in Bolivia whose llama-farming craft would have melted into obscurity along with their income. Cotopaxi reduces poverty by providing a profitable product that demands their services. And there’s more to it than that, I’m sure, but you get the idea. The company’s profits are tied to their social impact.
And now for exciting BONUS material, haha — (SEE BELOW)
I went through the sheet of businesses and their mission statements and put few of them into buckets based on a quick google search regarding their social impact work. I’ve identified four possible categories.
(This was an idea that I got after listening to class on Tuesday and also approaches what we were doing with the spectrum today in class.)
THE SPECTRUM: Legally Okay (Level 1) —> Virtuous (Level 5)
Note: I didn’t even bother with anything before “legal” or “neutral” on the spectrum. We could just say that the companies that aren’t even legal definitely aren’t virtuous and probably never will be and just leave it at that.
Level 1: Profitable company, very limited social outreach.
“I worry about the world. I want to make six figures off my business and then donate to charities. Maybe I’ll even start a nonprofit.”
I’ve heard almost that exact phrase from many entrepreneurs. In fact, I’ve said it a few times myself. That is, until I realized something about this “wealth-to-donate plan.”
First, you have to understand that the wealth-to-donate plan traces back to Milton Friedman’s revolutionary and still largely influential assertion that the purpose of the firm is to generate wealth; then, the wealthy who benefit from the firms can distribute their wealth to others.
That’s a good plan, Milton — until it’s not.
For those dreaming of doling checks out to struggling nonprofits while relaxing in the cheetah-carpeted study of an Italian mansion, here are six reasons why that plan might backfire, and what we as entrepreneurs can do instead.
1. Some social problems can’t wait until you’ve made your millions.
Social issues like climate change, poor public health, unemployment, poverty, and crime are still growing. These issues might be irreparable in 20+ years. Take air pollution, for example: If we didn’t do anything about our filthy air quality for 20 years, the population might either already be widely bedridden with respiratory disease or already be dying anyway because of lowered life expectancy due to pollution. By then, it’s too late. A similar principle applies to social ills that attack certain subpopulations: a starving child can’t wait 20 years for their next meal; suburbs with high crime rates can’t wait 20 years for increased safety. Even small efforts in the right direction now can abate the darkness of a future in which our social problems are compounding upon themselves.
Try this instead:
Donate a percentage of your company’s profits now to causes you care about.
One business owner decided to donate 10% of his start-up’s revenue to charity forever. A commitment like this definitely has its drawbacks and unknowns, however, the possibility of alleviating a social ill now that could be irreparable in the future is priceless. Plus, being socially-conscious is a rising trend in businesses and a “must” in many circles. Your brand image could only improve.
Connect now with grass-roots efforts in your community.
Contact your city council, community leaders, and local non-profits for information on high-priority social causes in your neighborhood. Even minimal participation will help you engage with these urgent and local social issues on a grass-roots level and position you to be a knowledgeable. Social issues are complicated. Grass-roots level work will help you overcome biases and debunk misinformation that might exist in circles that are farther removed from the issue. Volunteering a few hours a week will enable you to stand in solidarity with others which will ultimately buoy them and transform you.
2. Some problems can’t be solved with money, so waiting until you can throw money at them won’t help.
Not to diminish the impact of a well-placed charity donation, but most social ills just can’t be solved by more money. Social impact for good often requires empathy, willingness, and grass-roots effort on someone’s part. And in its absence, no amount of money can substitute for human-to-human interaction: it is necessary/critical/of the utmost importance in solving deep-rooted, systemic social ills.
“Some of the most intractable problems we face as a society — addiction, homelessness, systemic poverty, mass incarceration and lack of access to health care, education and economic opportunity — are symptoms of other, more deeply rooted issues. “Solving” the root causes of these conditions requires more than capital. It requires empathy and a willingness to change the existing conditions that create the inevitability of many of these inequities.” — Carter Stuart, former federal prosecutor
Many impactful organizations don’t need more money; rather, they need more people. For example, The Other Side Academy, a residency vocational school in Salt Lake City Utah for the homeless and recently-incarcerated, is responsible for an impressive 98% rehabilitation rate. The residents learn practical life skills by running the school’s 3 businesses which in turn, completely cover the cost of their 2-year stay. TOSA’s biggest impediment in expanding all across the country isn’t lack of money; it’s lack of personnel. Their model relies exclusively on the influence of staff members who aren’t professionals or psychiatrists, but rehabilitated criminals themselves who were once in the same place as the residents. No amount of money could replace an influence like that.
Money can also worsen the social ill. Unfortunately, some well-meaning institutions and movements trade short-term solutions for long-term stability. Sometimes free handouts, welfare programs, and stipends foster dependance and victimhood instead of self-reliance. In these capacities, money does little to fix the psychological and systemic root of social ills, even though on the surface, such efforts might appear like progress.
For example, the solution to poverty doesn’t lie in poverty reduction with handouts or welfare checks, but rather wealth creation. Henry Hazlitt in his book called “The Conquest of Poverty” wrote that welfare programs often stunt wealth creation, as well as require exorbitant amounts of debt in the long run to keep such one-sided cash flow programs operating. The donation-debt cycle eventually results in inflation, causing a lopsided distribution of money in the economy, thereby hurting the poor even more.
On a smaller scale, passing off a $10 bill to the homeless on the street corner might make you feel charitable, but your extra cash likely contributes to a cycle of panhandling and illegal activity — the “business of begging” as a Utah news source put it. Many aren’t even homeless or as desperate as they portray. The benefits of making $200-$300/day on the streets outweigh the prospect of getting an honest job.
Try This Instead:
Donate to nonprofits that promote sustainability and self-reliance.
Seeing the homeless on the streets with their cardboard signs pulls at my heartstrings, and I don’t want to believe that they’re all scammers. Offering them food or paying directly for a bus ticket is a step forward in making sure we’re not enabling them. However, a donation to a shelter or a vocational school for the homeless could likely be better placed.
3. By focusing on social impact only after making money means that you might be contributing to the very problems you will eventually try to solve.
Walmart has destroyed how much of the environment, only to then try to repair the environment? Perhaps the environmental alarm clock wasn’t ringing as loud in the 60s when many of the business empires started. Perhaps they didn’t design their processes with the environment in mind. But if any of these massive corporations — Walmart, Target, Amazon, etc. — want to make a difference in the world, maybe they should just mitigate their traditional contributions to social ills.
It’s all fine and good if these corporations can in fact repair the damage they’ve done, but like discussed earlier, that might not be possible. Simply donating to charity doesn’t cut it if you’ve irreparably damaged the planet for everyone. Hope you’re listening, Milton — your plan that businesses only job is to maximize profit in the hopes that some of that profit might spill over later might not work in a global market with global ills.
Try this instead:
Create your business processes with social impact in mind from the beginning.
Perhaps if Walmart had used renewable energy sources back when they started, they wouldn’t be in the same trouble they’re in now. They might have been an asset in their communities not just with their product offerings, but in social good as well. As you’re designing your business, make it a habit now to integrate social impact into what you do everyday — your processes, your employee relations, your community. Social impact can happen THROUGH your business, not IN SPITE of your business.
4. You might fall out of touch with social problems when you’re wealthy.
Social and cultural barriers make it difficult to understand social problems at their roots. Top-down solutions come off intrusive, disconnected, and sometimes even damaging. Executives at the Other Side Academy, for example, complain that politicians don’t understand what their constituents need, and their campaigns land more people in the streets. Solutions are often only apparent from the ground level by someone who can see, feel, and understand the day-to-day situation of those involved. This was exemplified by a groundbreaking discovery about the poverty-to-prison pipeline: the issue wasn’t lack of educational opportunities or even lack of health care, children were near-sighted! Eyeglasses changed everything for some of those kids, and is not the kind of solution that would be dreamed up by an executive sitting in an office. The only way this worked was because people worked personally with those affected.If you wait until you’re wealthy, you’re choosing to hire other people to make a difference with your money, rather than being part of the solution yourself.
Likewise, unless you select a social ill that relates to your expertise, you’ll be entering a completely new industry to make a viable social change. Social ills are nuanced and complicated, built on generations of multifaceted issues. To make an active difference, you’ll have to understand the literature, catch up on the work already done, and network with professionals and organizations in the field. Such effort would be comparable to learning an entirely new language and culture. After 40 years of 60 hour work weeks, I wonder if such an effort would still be attractive.
Try this instead:
Volunteer time; not money.
Depending on your salary or earning potential, a few hours of time each week is a significant donation, especially compounded over time. Volunteering in person at an organization or on a cause will also give you an inside perspective to the effectiveness of the solutions presented. You might identify gaps that others might not see because of your unique experience and business background. Oftentimes, the sphere of social impact is dominated by individuals with a virtuous motivation, but perhaps lacking a business mindset. You could provide that perspective.
Start the habit now of collaborating with people outside your social status.
Find places where all members of the social ladder come together. Church groups are a good place for this. Community centers are another. Your very own business might be yet another. Do you employ people of a different demographic than you? What about your target market?
5. You’re squandering the impact you could have now with the great resource you already have — your business.
This is to say — Milton was wrong. We’re waking up to the fact that defaulting to personal donations won’t fix anything long-term. But this is good news. Profits and social impact don’t have to be mutually exclusive. This means that business isn’t the bad guy anymore.
People are waking up to business’s potential for social impact across the globe: [description of Oxford], [description of b-corp], [description of virtuous organization project].
Business has a tremendous social impact on employees, customers, and shareholders just by doing business. And they do it without third-party, non-profit partnership or unrelated charity initiatives. Their impact grows as their profit grows. Friedman would disagree with me, but I say it’s not only the rich philanthropists that have power to make social change.
Try this instead:
Combine your business’s social impact with its core competency, so social impact increases as profit increases.
Up to this point the narrative has been that for-profit businesses create the social problems, and then the non-profits and government bail us out. However, there is a new wind blowing. People are realizing that for-profit businesses have the power, if harnessed correctly, to be a greater engine for social change than any other force (don’t hate me, non-profits).
But it doesn’t stop there. Not only do for-profit businesses have the power to make the greatest social impact, but they can do without sacrificing their profits or productivity. The new way is to structure your business so that your social impact grows in proportion to your profits. The bigger your business, the bigger the good you do.
Start with what you can change in your own business.
Jeff Bezos made a post on Facebook saying that he was going to donate $200,000 to charity and was asking for suggestions. People lashed back at him immediately saying he should just pay his workers a living wage.
Start with your own sphere of influence. What problems is your business solving already, and how can you capitalize on that? Here are some ideas:
Diversify where you hire people from. Always hire the best candidate for the job, but maybe instead of hiring your buddies from college, post your job at the local community college, vocational school, or an area with a different demographic than yours. You could find a great and qualified hire, but just not have access to the same advantages your buddies do.
Source your materials locally. Support other growing businesses instead of the giant corporations who may or may not treat their workers humanly.
Humanize your interactions with your employees. Treat them like people, not resources. Take time to hear their feedback about your workplace. You’d be surprised what they say.
Capitalize on the problem your offering is already trying to solve. Vivant, a home-security and surveillance system company, spreads the word that their systems can help families with autistic children. They raise awareness about autism, while providing a service that can help, while also growing their own company.
We can get all starry-eyed about the prospect of repairing social ills doing what you’re doing already with your business, but this isn’t to say it won’t require some sacrifice. For one thing, it requires a paradigm shift. We entrepreneurs must not only think about efficiency, but also think about social impact. We can’t only consider maximizing profits, but also maximizing social change. We can’t just think about offering a competitive product, but offering a solution to an ill greater than our business. We can’t just think about our target market, but we must think about our global community.
I and many others are convinced that the fate of this planet and perhaps the entire human race doesn’t lie solely in the hands of government programs, humanitarian trips, or 3rd-party non-profit arms of corporations: Our future lies in the ever-globalizing private industry. You want less unemployment and poverty? Foster entrepreneurship. You want a cleaner environment? Design your supply chain with renewable energy. You want to end racism? Diversify your recruiting. You want a better world for your posterity? Look no farther than your own business.
Milton Friedman was right: the firm’s social responsibility is to maximize its profits, but that’s only one half of the picture. He overlooked social impact.
A new mantra: The social responsibility of the firm is to maximize its profits while maximizing its social responsibility.
So for all you aspiring rich philanthropists out there… you don’t have to wait to do good until you purchase your own Lamborghini or hire a secretary for your secretary’s secretary. You’re sitting on a powerful engine of social change right now. For the sake of the global community, don’t wait to fire it up