Critical evaluation of: Being good is good for business

The aim of this essay is to critically evaluate the idea ‘being good is good for businesses’. The main idea of this quote is that businesses must not merely focus on economic mission of the business, but they also consider the social and environmental purposes of the business. This essay builds the foundation by starting with relevant theories and then it discusses whether or not being good is good for business. It does not simply describe the ideas but it critically evaluates this statement and also considers criticism on it.

The rationale for being good can be found in the Resource Based View. This model states that with the help of resources that are valuable, rare, inimitable, and non-substitutable, organizations can gain competitive advantage (Barney, 1991).  A firm that is adopting the strategy of ‘being good’ can gain advantages from its investment, if its strategy cannot be copied by others. So the activities planned for ‘being good’ that are valuable, rare, inimitable, and non-substitutable becomes good for the social and financial benefits of the business. As mentioned by Wernerfelt (1984), such activities help an organization to follow a differentiation strategy. Hence, if good activities are started after doing a thorough cost and benefit analysis, it is good for the business.

Businesses use different frameworks for being good. One of such frameworks is Corporate Social Responsibility as mentioned in Carroll (1991). According to this framework, businesses has four responsibilities, if they follow all these four responsibilities, the ultimate success is theirs. They must strive for ‘being profitable’, ‘obey the law’, ‘being ethical’ and ‘being a good corporate citizen’. Those businesses whose foundation is on these four pillars are better among others (Carroll, 1991).

Another framework used for ‘doing good’ is Conscious Capitalism (Kofman, 2008). The figure depicted below presents the main idea of this framework. This framework involves four aspects involving personal sustainability, ecological sustainability, organizational sustainability and social sustainability. Organizations that follow this model of Conscious Capitalism ensure that they good at all four levels. The ultimate advantage of such practices is that business becomes sustainable and reaps improved financial benefits (Kofman, 2008).

According to Steare (2006), business is an economic activity. For every business activity, many business personnel always look for an economic rationale, so is for ethics. The questions is “Is being good, good for business?” the most obvious answer is that yes it is good for business to be good. Most importantly, this is good in the long run for the business. On the other hand, the question is “Is being bad, good for business?” the ultimate answer is that yes businesses can also be profitable in the short run by being bad. It is as attractive to be bad as robbing a bank, which can give you a million of dollars, given that you don’t get caught ever!

Many academic researches have been conducted to explore the answer of this question whether or not businesses should be good. Interestingly, the evidence of being good is good for business is quite strong. Many studies have tried to explore that how successful companies differentiate themselves from other companies (Steare, 2006). Recently, LeapCR conducted a survey and found that 75% of employees want to work with those employers who balance commercial success with social benefits.  A study is conducted on world’s largest countries found that there are 93% customers who purchase a brand because that brand is involve in a social cause that is good for the society (Steare & Stamboulides, 2008).

The economic crisis of can be escalated only if businesses start thinking about ‘doing good’. Business must not focus merely on the bottom line, but they must try to make a difference by ‘being good’ and by doing so they can really do well because profitability increases with such initiatives. Financial profit should be a driving force for a business, the core aim of the business must be to ‘do good’ for all stakeholders of the business. We have famous examples of giant companies who have make profits because of their activities that aimed to do good for society. Marks & Spencer introduced an initiative with name of ‘Plan A’ that was about green measures and it is reported that the business made £70 million from this initiative. Likewise, General Electric made $70 billion in five years from ‘Ecomagination’ (Carne & Matten, 2004).

WOBI Magazine (2010) quoted that, for being good the famous companies like Tata Group, Google and Whole Foods are adhering to Conscious Capitalism. By being part of this movement, these companies are protecting free market and free association and they are promoting entrepreneurism, collaboration and compassion for the overall good of the society. Being part of Conscious Capitalism is beyond corporate social responsibility and it has more favourable outcomes for the business. By challenging the conventional business wisdom, such businesses are paying their employees higher, collaborating with communities and they have sustainable and environment friendly operations.

According to Mackey and Sisodia (2014), the result of ‘being good’ by conscious capitalism is that such companies are having better performance than their rivals. They do not have to spend higher budgets on marketing, because they have satisfied stakeholders who speak for them. A famous example is of Jordan’s Furniture that has three times lower budget of marketing but it is having six times more revenue than its competitors. By being good, companies are also enjoying lower turnover of employees hence saving costs. For example, The Container Store has employee turnover of less than 10% while its competitors are having turnover of around 90%. Such companies also have loyal and high productive employees. Basically, such companies hire those employees whose personal values are in line with the aims of the company. Hence, when companies involved in those activities that are good for others, their employees feel a high level of commitment. Donaldson (1991) mentioned that such businesses improve the bottom line through cutting waste. Such companies’ employees are also motivated and such brands shine brighter than others.

Such businesses have lower administrative costs, their collaboration with employees and suppliers allow them to cut those costs that do not add value. Whole Foods has enjoyed benefit of reduced costs through the implementation of initiatives related to health and well-being program. Moreover, Whole Foods has implemented any policy for the good of its employees. It has a policy that no one in the company should earn more than 19 times the average pay in the organization. So, if the managers have to increase their pay, first they have to increase the wages of lower level staff (When & Respond, 2004).

When businesses do ‘good’, they are admired by all stakeholders. The value of being admired is more than 30% to a company’s profitability. The analysis shows that over the last decade the value of ‘goodwill’ of companies has quadrupled, on average, which tells that their intangible assets are increasing by being good. The most famous examples of ‘being good’ are trust, social responsibility and being ‘green’ (Sen & Bhattacharya, 2001).

However, there are few critics of this concept of ‘being good’. Firstly, such activities project the positive image of business by doing quite little which in not justified (Mullerat, 2009).  Secondly, when businesses involve in such activities, they do a lot of publicity of their involvement is such activities and reality might be different (Freitag, 2008). This is more of an impression building activity. Thirdly, such activities often contradict with actual business practices. Examples of such practices is promotion of equality in the workplace at their own premises and outsourcing of few business processes in developing countries, paying them lower and make them work in poor working conditions (Schwartz, 2011) . Cartka et al (2004) states that such activities are empty promises and these are only effective public relation tools. An example is of Ben & Jerry’s. Prior to its acquisition by Unilever, it had three missions i.e. economic, social and environmental. It heavily focused on doing good, but ultimately its financial conditions become so poor that it could not work independently and Unilever had to acquire it.

No doubt there are few critics of ‘being good’ but the evidence of benefits of being good is much stronger. Hence, it is concluded that being good is good for business. It is recommended that business personnel need a new mindset for capitalism. We need to understand that capitalism is not only about making profit and screwing people for the sake of profit. Businesses that only worry about making financial profits by any means don’t deserve to be sustainable businesses. If business personnel will have a mindset where ‘to be good’ is the main purpose of the business, most of the world problems will be solved. This business purpose is as profitable as merely concentrating on financial gains. So, as shown in the model of CSR, if business will have foundation of all four pillars, it will succeed.

 

References

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