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A Corporate Challenge

Finding profit in virtuous behaviour

Big business has taken a lot of heat recently. A wave of scandals in the U.S. and Canada has generated a loud cry for reforms and some soul-searching among business leaders. Most executives want their organizations to be known as good corporate citizens and to deliver rising profits for shareholders, but many have not found innovative ways to do both.

As one would expect, U of T’s Joseph L. Rotman School of Management requires MBA students to take a course in business ethics. But the point is not to try to teach the difference between right and wrong, says Dean Roger Martin; it’s assumed that students already know this. The school does try to get students to think carefully about their values and how they influence their decisions. The vast majority of business people want to do the right thing, Martin adds, but in many cases the “right thing” (or the most socially responsible thing) is not always apparent, or comes with a variety of unpleasant side-effects, such as a decline in profit (see “The CEO’s Dilemma”). Through the new AIC Institute for Corporate Citizenship, the Rotman School will encourage executives to think creatively and long-term about how to generate benefits for their company by becoming better corporate citizens.

Some businesses have turned virtuous behaviour into a successful marketing tool. American Apparel, for example, a clothing company started by Montreal native Dov Charney, manufactures all of its T-shirts in downtown Los Angeles and boasts a “sweatshop free” working environment. The Body Shop does not use animal testing, and pursues a number of environmentally sound business practices, which are all described on the company’s Web site. Even though these firms no doubt incur higher costs, they also reap benefits from consumer goodwill. Martin would say these companies are operating on the “virtue frontier,” far out in front of most others in their industry. They are the “social innovators,” similar to the way companies such as Microsoft, Intel and Sony are technological innovators.

What does it take for a company to be a social innovator? Most important, says Martin, is an owner or senior executive with vision who can convince the company’s stakeholders of the benefits of progressive corporate policies. “Opportunities abound to devise programs and processes that benefit society as they enrich shareholders,” he says. “What seems lacking is imagination on the part of executives.”

A few years ago, the U.S. magazine BusinessWeek asked people which of the following two propositions they support more strongly: that “corporations should have only one purpose – to make the most profit for their shareholders.” Or, that “corporations should have more than one purpose. They also owe something to their workers and the communities in which they operate, and they should sometimes sacrifice some profit for the sake of making things better for their workers and communities.”

All but five per cent of respondents chose the second proposition. Which suggests that senior executives could generate plenty of goodwill and higher earnings by more aggressively seeking out the “right thing.”

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