The New Trend in Social Responsibility Ownership

Written by Ethisphere

The level of involvement that today’s company leaders have in social responsibility programs – CEOs, board members and others – is really unprecedented over recent history. Even as recently as 10 years ago, it was widely debated whether leaders should focus on stakeholder value or exclusively shareholder value.

In 2005, Reason Magazine published what became a fairly well circulated debate between Whole Foods CEO John Mackey and the economist Milton Friedman. The debate centered on the difference between shareholder responsibility and stakeholder responsibility – Mackey supporting the idea that companies should maximize stakeholder value, and Friedman defending his long-held belief that companies should be concerned solely with providing greater shareholder value to investors.

In the debate, Mackey argued, “At Whole Foods we measure our success by how much value we can create for all six of our most important stakeholders: customers, team members (employees), investors, vendors, communities, and the environment.” While Friedman, on the other hand, argued that all business activities are and should be targeted toward increasing shareholder value.

What was notable about the debate was that the two participants at that time represented opposite ends of the spectrum. The discussion stirred up many further ideas and commentary across a number of media outlets including Fortune and Time Magazine.

The debate came to mind again recently following some comments Apple CEO Tim Cook made during the company’s annual shareholder meeting this year. During the meeting, a representative from the National Center for Public Policy Research suggested several times throughout the day that Apple should immediately cease pursuing environmental initiatives that don’t directly impact the company’s bottom line.

After the third time the idea was suggested, Cook, visibly flustered, remarked, “we do a lot of things for reasons besides profit motive.” After a few more tense words emphasizing that point, Cook went on to suggest that any investors who had a problem with that approach should divest. “If you only want to make … decisions that have a clear ROI, then you should get out of the stock,” Cook told the audience.

While the statements made it into a few business outlets, it was far from frontpage news. And the company’s share price remained steady. The truth is, Cook’s comments weren’t very surprising. That’s because, at some point since the 2005 debate between Mackey and Friedman, not only did social responsibility and maximizing stakeholder value become a substantial focus of many multinational corporations, but the social responsibility and ethics efforts (i.e. maximizing stakeholder value) of companies today are largely lead by CEOs themselves.

A good example of this now established trend of CEO engagement comes from this year’s World Economic Forum event in Davos, in which leaders from many companies came together to discuss the importance of social responsibility and ethics. One session at the event, titled “Doing Business the Right Way,” featured the leaders of PepsiCo, PricewaterhouseCoopers and others, all of whom discussed the necessity of CEO and other leaders’ involvement in ethics, social responsibility and shareholder value initiatives.

Other CEOs spoke at Davos individually or as part of panels on their own “pet projects,” which involved social responsibility, ethics and governance programs – including global anti-corruption efforts, sustainability programs and human rights issues.

Even beyond representing the companies they built or became attached to, leaders are making a clear statement that philanthropy and personal responsibility is important in their private lives. Of course many know of the work that Bill and Melinda Gates are doing through their foundation, as one example. And of course the Giving Pledge has made significant headlines around the world with the number of billionaires and millionaires pledging to dedicate the majority of their wealth to philanthropy.

Similarly, Ethisphere has been very proud over the past couple years to provide a forum for leaders – both in the private and public sectors – to discuss their views on ethics. We have featured global leaders including the CEOs of John Deere, DuPont, General Electric, Aflac, NYSE/Euronext, Ricoh and many others, alongside global thought leaders such as Secretary of State Madeleine Albright, President of Uruguay Tabare Vasquez and others.

The clear message being communicated by these leaders is that executive and CEO involvement in ethics programs, social responsibility and similar matters is no longer just the domain of a few leaders on the far end of the spectrum. Today, just nine years after the debate between John Mackey and Milton Friedman, it’s the norm.

This trend is obviously a very welcome one and, as it turns out, beneficial for business. Take, for example, the World’s Most Ethical Companies, all of which have strong tone from the top and leadership buy-in of the ethics program. These companies, when indexed together, also regularly outperform other major indices, including the S&P 500. We of course encourage all CEOs, board members and other leaders to continue this trend and to continue – as John Mackey put it – to measure success by the value created for all of an organization’s various stakeholders.