Since Milton Friedman’s assertion that the social responsibility of business is to make profit and distribute it to shareholders, several streams of research have examined various roles for the positive impact of business in society. Corporate responsibility research has examined the obligations of business to its various stakeholders, the study of social enterprise has explored the role of organizations with prosocial missions, and still other scholars have examined the shared value proposition that business can create shared value for multiple stakeholders.
However, all of these approaches presume Milton Friedman’s assertion that positive social impact within a business must come at the expense of the business’ core operations. This paper questions that premise, suggesting instead that business has the potential to create positive social value in eight specific ways even in the absence of a prosocial mission, corporate responsibility activities, or public-private partnerships.
By maximizing these eight core prosocial roles of business in society, we argue, business as an institution can maximize its positive social impact and realize its potential as a stabilizing force in global society.
Each cohort of the Creating Virtuous Organizations Initiative builds upon the theory already laid down by previous cohorts. This “Librito” is the most current synthesis of the theory to date.
This represents hours of collaboration, thinking, writing and testing by the 4 previous cohorts.
In this Librito you’ll find the principles that make up the Virtuous Organization, along the theory, ideas and practices we’ve developed along the way.
In effort to test the theory of the Virtuous Organization, we compiled a list of businesses and evaluated them according to the theory’s principles we were studying at the time.
This report gives you real insight into actual business practices and real-world example of these principles in action, or as the case may be, not in action.
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.
Identify the Needs in Your Own Business
A few years ago, Jeff Bezos posted on twitter asking for suggestions on where to donate money to charity. The great irony is, many of the thousands of comments responsed lashed back at Jeff Bezos himself for not taking care of his own workers. Perhaps if he paid his employees a better wage, they’d be able to send their children off to college, for example. With Amazon’s far reaching influence over quite literally the whole world, improving the lives of the people Jeff’s directly responsible for would likely make a bigger, more responsible, and more lasting impact than a one-time (abiet hefty) donation to a 3rd party organization.
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:
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.
Humanize Interactions
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.
Business to Employees
Consider retention factors for modern day workplaces, and incorporate such into your processes. Some of these include providing schedule flexibility, work-life balance, opportunities for personal fulfillment and growth, and a positive work environment.
Align your business with a social cause thus offering employees the personal benefits that accompany charitable donations and service.
Final Thoughts:
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.
When customers, employees, and shareholders interact with your business, they want to know that your business is good. Not just good at making money, but actually good. Good as in virtuous. Good as in a way that makes people proud to be associated with you.
People often associate the virtue of a business with the virtue of its leaders. So business leaders’ individual virtue is a big part of how a whole company is perceived. Studies show that good leadership in business has a positive effect on the company as a whole.
Every employee also plays a role in the virtue of a company. Businesses that have a positive company culture that supports moral integrity, must be supported by the people who make up that company.
Understanding how to make your business virtuous is the key to continued growth, and has been found to lead to financial success as well . If your business can create a culture where each person is encouraged to exemplify the shared values of your business, then the practices of the organization as a whole are also more likely to be virtuous.
Based on a synthesis of research and work done by the Brigham Young University team; Creating a Virtuous Organization, here are 5 characteristics that each business should strive to consistently practice to increase both individual and business virtue: integrity, equality, responsibility, accountability and humility.
Integrity
It starts with you. Integrity is a state of being morally upright and honest with ourselves and others. We as people are a product of our thoughts. What we think about ourselves, others and the world shape the way we act and treat others. Let your own personal thoughts and actions be devoted to good. If you have integrity then you can build trust with your employees and it will motivate them to work harder and to be honest.
Businesses are successful because of the collective efforts of groups of people. Whether you are a business leader in an established company or an entrepreneur starting your own business, you shape the ethical culture of the company you lead. A study suggests that businesses with high levels of trust in their leadership are more successful: They generate more profit, make more sales, and retain their employees for longer. Companies with strong cultures of integrity are also more likely to engage in successful corporate responsibility efforts. This means that valuing and really engaging the virtue of integrity can create a business culture that will help the company to thrive. Here are some things you can do at the individual level and at the organization level to help you start to build a culture of integrity today.
Individual level:
Create a personal mission statement that aligns you with our moral virtues.
Before making a commitment, make sure you know that you can 100% deliver.
Be on time and keep your appointments.
Business level:
Evaluate your company mission statement assuring it is morally sound.
Talk about it- make sure to speak openly and honestly about company ethics and have training that emphasize building company integrity.
Equality
Creating a culture of equality means that everyone, employees, recruits, customers even stakeholders, has access to the same opportunities and fair treatment. Studies show that diversity in the workplace helps you to reach more customers and attract workers. If your job applications are open to everyone you will be able to recruit the top talent, and your business will see an increase in creativity because people with new perspectives will be contributing their ideas. There are many companies who are great examples of equality. The software company Salesforce is a great example. They make it their mission to create a safe and equal workplace for women advancing their tech careers. To see more examples of how Salesforce does what they do visit their website.
Individual level:
Mind your language- be aware of the things you say and how you say it
Revaluate past encounters: take a look at your past experiences to discover any bias’ you may have and if needed work to overcome them.
Business level:
Put equality policies in place
Have objective criteria: when recruiting or promoting make sure to make group decisions based on objective criteria so things are based on merit
Be aware of an indirect discrimination: review your company policies to make sure there isnt anything that limits your employees from being free to focus on their jobs.
Responsibility
People who are responsible are dependable, keep their promises and honest. Responsible business looks the same; honors commitments and is a reliable source for customers. It is important to take responsibility and be quick to act if there are mistakes made. Inevitably people will make mistakes. You cannot perform perfectly all the time. When you falter, take responsibility and move quickly to fix the problem. Take for example Starbucks’ response to the Philadelphia incident. They responded quickly to a situation in which two black men were unlawfully arrested in one of their stores and made company wide adjustments to policies that would correct some unacceptable behaviors. When customers see these kinds of quick responses, they are more likely to return to your business and you will gain the reputation of a trustworthy organization.
Individual level:
Do not make excuses for yourself
Avoid procrastination
Stop complaining
Business level:
Respond quickly and humbly when complaints are made against your company
Do not push back deadlines of jobs that you agree to complete
Own up when your business has made a mistake and admit fault and commit to improvement.
4. Accountability
To create a virtuous prosperous organization, you need more than just executive accountability, you must be socially accountable as well. Accountability is an assurance that an individual or an organization will be evaluated based on their performance or behaviors, where corporate accountability entails being answerable to shareholders and the public for actions or results. Social accountability helps keep businesses accountable to helping build a healthy future for its employees, community or the world in general.
Virtuous organizations will always acknowledge and be accountable to the potential risk of their product or service. They will actively educate their customers of those risks while working to mitigate or remove them. Businesses that do not learn, grow, adapt and change are likely to face irrelevance and obsolescence as the rapidly changing social and technological organization can learn. A good source for a self evaluation could be based on the B-corp assessment or the ESG model. You should look often and critically at your organization and find areas of improvement based on these assessments.
Individual level:
Take a self evaluation assessment as an employee or leader frequently
Set personal goals for yourself and hold yourself to them
Clearly communicate what you are doing and what you need from other people.
Business level:
Have a 3rd party come into your organization to run an evaluation and give you feedback on areas to improve.
Identify areas you provide needs in, and elevate your practices to better fulfill those needs for your employees.
Humility
In business humility is not a virtue that is praised often, however, it is critical to creating a virtuous organization. Humility in business would be the ability to listen to other people and to think of yourself less; while still being able to celebrate success. It is easy to become very focused on your business and make sure it is growing and being successful. This focus could cause you to develop blinders and overtime become less likely to think of others.
Brad Owens of the Marriott School of Business at Brigham Young University studied the power of leadership humility. In one of his published articles, Owen’s found that when leaders display humility, studies have found employees have higher job satisfaction and are more likely to be engaged. It will take courage and strength to be humble and admit faults or listen to opposing opinions, but ultimately your business will be strengthened and more profitable.
Individual level:
Listen to other in your company, and ask for people’s opinions
When giving corrections, show humility and identify your own shortcomings as well.
Be willing to ask for help.
Business Level:
Practice accurate awareness; be conscious of where your companies strength actually lie and where you have areas to improve
Develop a culture of openness, taking in suggestions and being open and transparent with employees.
Businesses are a reflection of the people who work at them. The values of the employees become the values of a business. Businesses are an integral part of the communities they are in, meaning that company values become a reflection of community values. If entrepreneurs or executives want to create a positive culture in their community they need to start with themselves and their companies. Even a non-c-suite employee can spark positive change in the culture of a business by reflecting virtue themselves. By taking the time to self reflect and work on improving your individual virtue you will help your business and ultimately your community become better.
