QUALITY CORRECTION

Rather than “giving back,” companies should build business models that don’t take away

“Decades of investment to shape a healthy supply chain is what gives Nike’s leaders real voice in the public square.”
“Decades of investment to shape a healthy supply chain is what gives Nike’s leaders real voice in the public square.”
Image: AP Photo/Eric Risberg
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Two companies stepped into the political fray this month. Nike “took a knee” with its new ad campaign featuring Colin Kaepernick. Levi Strauss released a $1 million commitment to reduce gun violence—calling for “Everytown” business peers to join the campaign.

Nike and Levi Strauss are brands with edge. Each has a history of embracing controversial issues. Each resides in a “left coast” city dominated by populations and an employee base that likely identifies with their stance. While the decision to step out is bold and, for many, principled—it’s also consistent with the brand image, and may even build customer and employee loyalty.

Anand Giridharadas’ provocative new book, Winners Take All: the Elite Charade of Changing the World, takes aim at this sort of commitment brands are increasingly making to social causes. A simplified version of his argument goes like this: the big winners under capitalism can’t balance the score and atone for the social and environmental costs of business-as-usual through good works alone. Giridharadas especially takes on ‘winners’ who identify with big social problems, but fail to challenge the rules of the system, from preferential taxes for capital over labor, to share-holder centric decision-making, that contribute in their own way to inequality. He challenges what he calls Market World—”an ascendant power elite that is defined by the concurrent drives to do well and do good, to change the world while also profiting from the status quo.”

Giridharadas questions the net value of philanthropy and so-called social enterprise. He posits that it’s not enough to do something good—i.e., in business, you can’t ignore the bad consequences of a decision by being generous with some of the profits. In particular, he raises pointed questions about those of us who elevate business as positive agents of change, as does the Aspen Institute, where I work.

But it’s easier to name this problem than to fix it. Giridharadas nicely sets up a critical question we face at the Aspen Institute and beyond: In a world of growing inequality and trade-offs between the haves and the have-nots, how will the change take place? Who leads?

Alan Murray of Fortune asks: “But why shouldn’t enlightened business leaders use their superpowers to try new solutions?” In other words, if the winners won’t lead, who will?

It is silly, as Murray points out, to ream business for doing good things. But Giridharadas is also right: to focus on the good works side of the equation often skirts the most significant business leverage, the opportunity of lasting impact when a better shake for all is built into the business model and the rules of markets.

It’s the company’s own operations that matter the most. Not the decision to donate to a good cause. Both Nike and Levi Strauss—brands exposed to the harsh light of consumers and their agents—have invested in comprehensive codes of conduct that raise the bar on everything from labor standards to human rights to the life cycle of the product. The issues are complex, and the work is never done, as recent events at Nike demonstrate, but decades of investment to shape a healthy supply chain is what gives their leaders real voice in the public square.

How will the change take place? I think there are two places to start for companies that have yet to do the work that has been done by a Nike or Levi Strauss.

First, we need to broaden the definition of a ‘quality’ product to include the way its produced, and the consequences for society.

“Quality” should not stop with the physical attributes of the product itself. Quality needs to embed the costs of producing the product that land outside the gate. No process or set of rules is perfect—all decisions have tradeoffs—but one of the clear principles of the quality movement, which was adopted by leading manufacturers like GE in its heyday, is the notion that quality is not an end state. Instead, it’s about continuous learning, evolution of what is possible, moving the needle on what is expected, and improving results based on input from multiple sources, while trusting the many to ‘stop the machine’ when quality is at risk. This can work for companies in service businesses, not just manufacturers. A broader definition of quality would have helped at Wells Fargo and VW when they played loose with the rules to, respectively, amp up revenues or cut costs, with bad consequences for both customers and brand value. A more expansive definition of quality moves companies a long way towards embracing the social costs for which they bear responsibility.

The second place where companies can begin to make a difference requires collective action. Giridharadas calls on leaders to challenge the very rules and protocols that increase the take for the winners—and produce greater inequality. Companies can’t get there on their own, but that doesn’t mean they get to sit on the sidelines.

Take CEO pay. It’s really hard to break the norms of the current system without a core of leaders working together. We need to engage and cultivate a small group—the size of a dinner party to begin with—to test principles of pay that build both a healthy culture within the enterprise, and that reset the norms in the wider system. It won’t be easy. But business-led systems change has been done before under conditions that are as challenging as the one we find ourselves in now—when business elites forged the post-WW2 plan to create massive reemployment of servicemen returning from the front.

The first step above—embracing a new definition of quality—can be initiated by an individual executive, or a single company, and puts a spotlight on the nexus of relationships on which the company depends—including employees and customers, in all their complexity. The second is about challenging the status quo—working together to fix the rules and protocols of business as usual.

Capitalism has created massive wealth since the advent of global markets, and it facilitates the manufacture and delivery of goods and services, from aircraft engines to Adidas, iPhones to insulin. It has lifted hundreds of millions out of poverty. But you have to be asleep to believe that the rules of the road that have created such wealth, along with immediate access to and tremendous choice of consumer goods, are serving us well today.

Perceptions of capitalism depend on how the game is played by those granted the license to operate a business. Those rules are always in flux, but if the decision-makers succeed by disregarding costs imposed on employees, or host communities, or government, no amount of philanthropy or good work evens the score.  Rather than “give back” it is much more important to get it right the first time.

Judith Samuelson is a vice president at the Aspen Institute.