Smart (socially-conscious) business

Marketplace Staff Nov 20, 2006

KAI RYSSDAL: Nobel Prize-winning economist Milton Friedman died last week at the age of 94. But his ideas are still with us. Here’s one, from a book Friedman wrote in 1962 called “Capitalism and Freedom:””The one and only social responsibility of business,” he said, “is to increase its profits.”

Kind of a jarring thought here in the early 21st century. But 45 years after Friedman’s book, some companies think it’s OK to dabble in charity. With a capitalist twist. Alex Goldmark reports more businesses are finding ways to do well by doing good.

ALEX GOLDMARK: Last month, Macy’s held an unusual product presentation in its New York City flagship store. Instead of a cooking demonstration hawking Teflon pans or brand-name spices, a stately African widow was weaving baskets, and the customers were lining up at the cash registers for them.

Thousands of widows in Africa are escaping poverty by selling their baskets to Macy’s. VP of Corporate Marketing, Ronnie Taffet, says, “Yeah, that’s nice and all, but . . . “

RONNIE TAFFET: . . . It’s not for charity. It’s not for charity at all. It’s a business partnership between the women and Macy’s. We are not giving them aid. This is not a check that’s being written that, when it’s spent, they’re back worrying about where their next meal is going to come from. This is an ongoing business relationship that, as long as they produce baskets that our customers love, we will keep buying them and keep selling them and so on and so forth.

CUSTOMER: I’m not really a basket collector, but I thought it was important to come here and purchase the basket for support reasons as well. So this is the first set of baskets that I’ve ever owned. I collect other things . . . like shoes.

Many customers are willing to pay a premium for that warm feeling they get when they buy responsible products, and the marketing departments know it.

JIM POST: Helping a good cause can certainly earn a profit.

Management Professor Jim Post of Boston University says companies are finding increasing success catering to a more socially conscious customer.

POST: Today, we see companies really developing an image of a 21st-century business that recognizes that the ultimate purpose of business is to serve customers and help to build a better world.

Lots of businesses don’t even come close to this mentality. But Professor Post says that those that do tend to be younger companies or ones that cater to a younger generation. Take the new magazine ambitiously titled Good, which profiles socially responsible companies and organizations. Their business model is built to match the values touted in the articles.

BEN GOLDHIRSH: Let’s walk the walk. Like, this magazine is about doing well by doing good, so let’s live that in our subscription drive.

Twenty-five-year-old founder Ben Goldhirsh is giving away 100 percent of all subscription sales to charity. So, how is he making money on this?

GOLDHIRSH: If we can get UNICEF fired up, then they have 1.5 million people on their mailing list. You know, they start pushing the magazine, all of a sudden that’s a marketing push that we could never afford with our start-up budget.

And if that boosts circulation, it also boosts the real moneymaker: ad sales.

But it’s not just about the the money. Goldhirsh really wants to raise $1 million for charity. Now, the logic behind this for-profit approach to saving the world, and the reason it’s on the rise, is that younger entrepreneurs like Goldhirsh trust the market. They see it as a solution, not as the cause of problems. So, instead of starting nonprofit organizations, they’re starting businesses. Like Peter Thum, founder of Ethos bottled water:

PETER THUM: When I quit my job to start this company, I thought that it would be possible to create a business where we could donate all of the profits.

Thum wants to raise awareness and money for clean-water projects in Africa. He couldn’t find a viable way to donate all the profits, but for a while he donated 50 percent, and that was newsworthy enough to build a brand worth buying, for Starbucks.

THUM: The bottled water business is relatively commoditized, and there are very few brands that have any differentiation at all, and that differentiation is pretty insignificant. And so the cause provides differentiation for Ethos.

Together with Starbucks, Thum has now raised over $2 million for clean-water projects — and built a thriving business.

In New York, I’m Alex Goldmark, for Marketplace.

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