Rethinking How Social Solutions Impact Profitability

Social sustainability can increase profits by meeting the needs of communities and markets.
— By Debra Jenkins

Profitability and social sustainability seem mutually exclusive because resources spent on social solutions do not produce profits. Or do they? In a marketplace increasingly aware of corporate governance and its responsibilities, the concept of shared values has moved beyond theory into transformative business thinking necessary for economic success. Only a couple of years ago, the idea that corporate social responsibility was integral to company success was regarded as a ploy more related to public relations. It did not take long to realize that bringing social solutions to the marketplace is intricately tied to profitability in an interconnected and globalized marketplace.

Today, it seems so natural to think of profitability and social responsibility as tied together. Stakeholders are more aware of issues connected to environmental and social sustainability and expect corporations to play a leadership role. It is no longer enough for businesses to generate shareholder value. They must create stakeholder value. Since corporations use the world’s resources to produce products, it is only fair that those same companies plow company resources into solving some of the problems in their communities of operation. Companies can put resources towards reducing poverty rates, contributing to environmental sustainability, expanding employment opportunities in communities, and expanding diversity efforts.

Social Sustainability Represents Relationships
The idea that corporations should move beyond donating money and become accountable for how profits are used to make social, economic and environmental impacts implies businesses must manage their relationships in the marketplace. Relationships are developed with customers, supply chains, government entities, and community members. Managing those relationships in a way that benefits both the business and stakeholders to drive new business opportunities can lead to profits that would not have been made otherwise. Taking this approach opens up whole new markets because business leadership can choose to address any of a number of challenges in areas of economic development, environmental sustainability, energy, healthcare, education, demographic shifts, climate change, and many others.

So how do businesses structure their approaches to improve social and environmental conditions? A fine balance must be maintained between using company resources to bring measurable social results while maintaining economic success. The first step is getting corporate governance in line. Transparency and top down leadership that ensures company efforts support social responsibility is essential. Otherwise, business activities can be unintentionally self-defeating by working against each other. For example, there are plenty of cases where companies get themselves into trouble by promoting environmental sustainability projects while using non-recyclable product packaging.

A recent example of conflict is found in the fashion industry. Companies selling organic clothing and supporting environmentally sustainable growers were having clothes manufactured overseas by companies in which employees were not paid a living wage and were asked to work in unsafe conditions. Stakeholders are now putting pressure on these companies to make better supply chain decisions, and the stakeholders may or may not be customers. Companies failing to respond to these market demands will find themselves losing business to those that fill the social responsibility gaps.

Creating Linkages
With effective corporate governance in place, the next step is linking business needs with social needs to find solutions that support the business mission, core values, and culture. BMO Financial Group, the fourth largest bank in Canada, serves as a good example of a Canadian firm serving a social sustainability leadership role. The company espouses the belief that the corporate choices made concerning social, economic and environmental impacts have a direct bearing on customers, shareholders, employees, and the communities in which it operates. Corporate governance is based on principles of accountability, transparency, and honesty. The link between company success and the expression of social sustainability is easy to identify. BMO Financial Group supports financial literacy, volunteers and invests in communities, and serves as a leader in environmental sustainability. In fact, the company announced in 2010 that it was carbon neutral across its worldwide enterprise, an impressive success.

The principles of social sustainability can be applied to any business without regard to size. Donna Cona, the largest Aboriginal Business and Technology Solution Provider in Canada, defines itself as a “true Aboriginal firm” offering business and technology solutions. Employing 200 people, the founder and company president John Bernard, an Aboriginal, is an active community member promoting diversity and particularly Aboriginal participation in the country’s economic opportunities. The company fulfils its social role by hiring Aboriginals, ensuring its supply chain includes Aboriginal firms, forming strategic alliances with other Aboriginal-owned businesses, and mentoring Aboriginals in the community. Notice the social focus permeates all business operations, forming the linkage between profitability and social responsibility.

Implementing a multi-stakeholder effort to improve social contributions in a way that adds to business economic sustainability requires careful planning. The strategies employed must give evidence of good management in order to attract top talent, loyal customers, and community trust. There has to be cross-functional alignment of the management team from the board of directors to front line managers.

Strategy development will include assessment of the social activities that are supported by a business case. For example, staffing firms are establishing international literacy programs and technology businesses are partnering with universities on internship programs. In both cases, the long-term goal is future workforce development.

Committing to Purpose
Once the strategies are developed, they should be communicated to stakeholders. There is a reason why corporations advertise social sustainability efforts and develop web pages going into detailed explanations. It is a form of commitment to purpose and promotes transparency and accountability. As commitments are put into practice, regular progress reports and evaluation are in order. Effective efforts bring benefits to the business and one or more groups of stakeholders. The process is never fixed and continually adapts to corporate learning through experience. Prioritizing the stakeholders targeted for engagement is a best practice for ensuring corporate resources are spent wisely.

The key benefits of engaging in social sustainability, beyond better ability to maximize profits, include better anticipation of marketplace risks across the social, economic, legal, and governance spectrum. Other benefits include enhanced ability to manage reputation, attract quality talent and supply chain participants, and achieve ideal market positioning. In a globalized, integrated, and participating marketplace, social sustainability has become a success imperative.