Classical American economist Milton Friedman would turn over in his grave if he knew that the interests of investors and corporate philanthropists were converging. In an influential 1970 New York Times article, Friedman argued persuasively that the sole social responsibility of business is to increase its profits.
Upending a half-century of this dominant business paradigm, Larry Fink, CEO of BlackRock, the world’s largest money manager, penned a letter to corporate executives. In it, he challenged Friedman’s logic, saying:
“Society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. […] Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
It’s an idea that catapulted the role of corporate social purpose to centre stage at this $6 trillion investment firm – and beyond. How does traditional grant-making and employee volunteering satisfy the call to action at BlackRock?
The United Way movement understands this. United Ways track needs in communities and identify where donor dollars invested in community services will yield the greatest results – based largely around the traditional philanthropic model. While a successful approach for decades, they are seeing a call for more meaningful participation from donors. United Way’s corporate partners want involvement in, and a deeper understanding of, the social issues faced in communities and want to become more engaged in the solutions – beyond just philanthropy. Companies and United Ways alike are seeing a need to go beyond philanthropy to embrace a more socially impactful business model, more aligned with the social purpose expressed by investor Larry Fink.
A recent Conference Board of Canada report on trends in Corporate Community Investment (CI) in Canada sheds light on this subject. Citing a survey of 76 community investment professionals from across Canada, the report finds that companies currently engage in philanthropy to engage employees and build or manage reputations (similar to the traditional United Way donor model). Philanthropy is not necessarily intended to generate new business, manage risks, foster innovation or attract investors. If the Fink letter is any indication of societal and investor trends, this will change.
Community investment professionals believe their roles will be less about philanthropy in the future and more about the company’s core value proposition. They predict a shift to strategic CI, if not embedding CI into the corporate mission statement. These community investment practitioners further anticipate that CI will become a core part of business strategy and that stand-alone CI departments will become a thing of the past: CI will be integrated across the business in every department. By the middle of the next decade, they believe, most companies will be designing their products and services to tackle environmental and community issues. Companies will leverage their assets, resources and competencies – beyond grants – to support community outcomes. Future CI will focus on building long-term resilience for the company and its stakeholders.
According to the Conference Board research, today’s CI professional focuses on developing CI strategies, engaging employees, making grants, organizing events, communicating externally, and measuring and reporting community impact – primarily tactical and incremental measures. Canada’s CI specialists believe that in five years they will be more involved internally, helping to build social aspirations into the company’s core purpose and engaging cross-departmentally to mobilize their colleagues to address societal issues together. They also see a role for themselves working externally, working with other businesses (even competitors) on shared societal priorities and participating in multi-stakeholder collaborations to address societal issues, as reflected in the call-out box below.
Within five years, community investment professionals will be involved in both “core” and “collaborative” roles in their organizations, described as follows:
- Building social objectives explicitly into the company’s vision, mission, and core purpose
- Mobilizing internal departments such as HR, procurement, and product development to address social issues enterprise-wide
- Collaborating with other businesses, including competitors, industry groups, suppliers or business partners on shared societal priorities
- Participating in multi-stakeholder collaborations on societal issues, including community groups, NGOs, governments, business, academia and others
Source: Conference Board of Canada
To address this growing trend, United Ways are responding with a new approach to help businesses directly effect community impact. They are engaging with businesses to bring about greater social change by advancing Social Purpose in Business. With input and guidance from United Way, companies are honing in on their unique social purpose and ultimately creating the partnerships and processes to make it come alive.
At SB’18 Vancouver, we will be sharing this journey towards social purpose during a panel session on Thursday morning.
Good-bye Milton Friedman. Hello Larry Fink.