Looking back to the Body Shop case that all Tuck first year students study in their fall semester Analysis for General Managers class, memories of vigorous debate over whether businesses are right or wrong to consider the social impacts of their decisions come to mind. We heard over and over again from our investment banker classmates that it was wrong, because businesses have a fiduciary responsibility to the shareholders to make the greatest profits possible regardless of the cost to society. Well after listening to our panelists on Thursday, it turns out that we were both right…and wrong.
Does environmental responsibility align to the goal of fiduciary responsibility? Barry Caldwell of Waste Management says yes. Barry’s words couldn’t have been more straight, “Sustainability is not an altruistic thing! It is a way to drive cost out of business.” Barry continued to describe how Waste Management’s business requires the support of their local communities due to the highly regulated nature of the business at both the state and local level. By being socially responsible, WM is able to be a good neighbor to the communities that are home to its landfills. As Barry put it, this goodwill translates into votes when WM needs them to continue to build its business. Furthermore, WM is doing a lot more than reducing its costs along the way. WM has been acquiring businesses and technologies that in some way make the business of waste more sustainable and more profitable as well. Companies owned by WM include Bagster, Greenopolis, and Terrabon.Their landfill gas-to-energy and waste-to-energy operations provide enough energy to power a million homes each year…and growing! I dare say that both Anita Roddick and our good friends at Goldman Sachs would approve of this business strategy.
Of course, it’s not always so cut and dry as Jonathon Jacoby from Oxfam was quick to point out. Too often companies find it difficult to properly align their business objectives with their CSR goals and end up falling short on at least one. However, PG&E is a great example of a company that has thrived at both, and its Melissa Lavinson shared insight on how they accomplish this. PG&E believes that all of their actions must be rooted in a set of core corporate values that include being “passionate about meeting our customers’ needs and delivering for our shareholders” and “accountable for all of our own actions: these include safety, protecting the environment, and supporting our communities.” These core values are considered in making every decision and are often reviewed during meetings, ensuring alignment between business and social objectives comes naturally. While these values may be at odds at times, PG&E works hard to make them complimentary objectives and has led to major decisions including the formation of the USCAP (US Climate Action Partnership), investment into cleaner energy sources, and withdrawal from the US Chamber of Commerce. PG&E considers its future to be dependent on the state of our planet both now and in the future, as short term gains now won’t mean much if there’s nothing left in 100 years. While PG&E has demonstrated their commitment to this space through their own activities, they’ve used USCAP as a way to unite leading businesses from all industries in their goal of making environmental sustainability a policy mandate. In the interim, PG&E has made the decision to invest in efficient, clean, and renewable technologies as its current infrastructure ages and needs to be replaced or rebuilt. Melissa pointed out that these investments are paid for by PG&E’s shareholders- not by increased rates to PG&Es customers, but the benefits will be enjoyed by all as traditional energy sources grow more costly due to resource scarcity and the eventual cost of carbon. PG&E is protecting its customers from major rate shocks and its shareholders from future industry liabilities.
So what does this all mean? Businesses owe it to both their shareholders and society to maximize cost savings and profits through sustainable activities. While we’ve focused on the environmental side of things as it is most easily tied to public policy, there is plenty of evidence that a wide range of types of corporate social responsibility activities lead to an improved bottom line for businesses, including more favorable reputations among customers, increased employee satisfaction, talent recruiting advantages, and the ability to charge brand premiums. So next time you think you have to make a choice between making money and doing right by society, take another look and consider both the obvious and the creative alternatives. After all, whether you want to work for an NGO or a bank, everyone at Tuck wants to succeed at both; because there’s nothing more central to business school than money and there’s nothing more central to Tuck than supporting your community!
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