Does the "Why" Matter?

August 30th, 2011

Companies often act charitably for reasons of self-interest. Most often they donate to charities for the public-image benefit. The perfect example is Product(Red), which has partnered with major corporations including American Express, Gap, Converse, Starbucks, Apple, Dell and Hallmark. These companies donate a portion of their profits from their sales of RED products to the Global Fund. In return they get a feeling of accomplishment and satisfaction for their good deed. Or…they get a lot of good press, which (hopefully, for them at least) translates into a bigger bottom line.

In fact, as theories go, the evidence supports the latter over the former. Companies participating in Product(Red) have embarked a costly advertising campaign, eager to notify the public of their charity.  In 2007, estimates placed the collective marketing costs of Product(Red) as high as $100 million, yet the products generated only $18 million in charitable contributions.  Also, many retailers either inflate or are ambiguous about how much of the sale price of RED products is actually donated to the Global Fund.  For example Apple’s website declares that “proceeds from every [RED] iPod Nano sold go directly to the Global Fund to fight AIDS in Africa.”  How much exactly? About $10 of the $149 – $179 of the price of a Nano.  For that kind of slim margin, a prudent consumer might as well buy one on eBay for $125 and donate the remainder themselves.

But does it really matter? In the absence of good press, many of these companies likely would not have donated any money at all to the Global Fund. So, hypothetically, whether Product(Red) generates $1 million or $100 million for charity is irrelevant—any increase at all is an increase that might not occurred without public demand and therefore is positive. On the other hand, the campaign might mislead consumers if they believe their purchases have a larger charitable impact than is true.

It is through this lens that I examine Glencore’s believed plan to support a global standard on transparency in natural resources. Glencore International is a multinational mining and commodities trading company based in Switzerland. In its past it has been accused of tax evasion in Zambia; illegal dealings in apartheid South Africa, the USSR, Iran, and Iraq under Sadam Hussein; and environmental violations in South America and Africa. Until recently, Glencore was one of the few natural resource giants who hadn’t pledged support to the Norway-based Extractive Industries Transparency Initiative (EITI), an organization which sets a global standard for transparency in oil, gas, and mining.

It now looks as though Glencore will publicly announce support for the EITI. And there is very little doubt that this is the direct result of Glencore’s desire to clean up its dirty image—not out of sudden repentance and reform.

There is a movement worldwide whereby business success is judged not just on economic profits, but also its yield in terms of ecological and social benefits. The approach has been called “triple bottom line” and proponents argue it creates sustainable businesses that will stand a better chance of remaining successful.  As Andrew Savitz, author of The Triple Bottom Line, and a former lead partner of PriceWaterhouseCoopers puts it: “Increasingly businesses are expected to find ways to be part of the solution to the world’s environmental and social problems. The best companies are finding ways to turn this responsibility into opportunity.”

It’s clear from its actions that Glencore’s major concern is its traditional bottom line, not a triple one. But does it matter if Glencore improves its behavior as a result of a desire for a better image or because it truly cares about the world’s environmental and social problems? Is it only the “what” that matters, or also the “why”?

My answer is yes; it matters. Perhaps not on a philosophical level. But the difference is in outcomes. (The very small minority of) Companies who truly care about triple bottom line will act responsibly regardless of whether they think anyone is watching. Companies who only care about their public image do the right thing where the world can see it—with executives flying to Norway to sign pledges—but might not chose to act socially and environmentally responsible in remote parts of developing countries, where they believe the world is not watching.

If the world had perfect information about what all multinationals up to all the time, consumers might be able to respond to unethical decisions and the situation might be different. But as it is, with so much room for so many secrets, we can’t expect companies to consistently act responsibly unless it’s driven by morals, not image.

Written by Ann Hollingshead

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