Traditionally, non-profits were funded almost entirely through government grants and private donations. But over the last thirty years or so, non-profits have come to rely more heavily on “earned” revenue generated from businesses that are substantially related to the charitable, educational, or other activities they are organized to carry out for the public good.
Just as non-profit organizations started to embrace for-profit business opportunities to diversify their sources of revenue while pursuing their missions, for-profit businesses began to engage in activities traditionally left to the nonprofit sector. The turning point may have been in 1967 when William C. Norris, then the CEO of supercomputer manufacturer Control Data Corporation, opened production plants in several impoverished cities and rural areas to create jobs that provided stable incomes and high-tech training for people who otherwise would have been left behind, like so many of the youth Juma Ventures serves. Norris was inspired by legendary Urban League president Whitney Young, who rallied against the social and economic injustice young African-Americans had long suffered. Norris also witnessed firsthand the 1967 Minneapolis race riot, painful evidence of that very injustice. Many contemporary corporations have followed Control Data's lead, adopting socially responsible practices either in the form of corporate philanthropy (dedicating a portion of their profits to fund activities that are socially beneficial) or as part of their business models (sourcing fair-trade agricultural products for which buyers pay more so that farmers in the developing world can earn more).
They have many reasons to do so. For one thing, it's good for their bottom lines. According to B Lab, over sixty million Americans today say that it's not just the cost, convenience, and quality of the products they buy that matter to them; it's also their social and environmental impact. Moreover, according to Raj Sisodia of Babson College, publicly traded corporations that compensate their employees generously, invest in their communities, and make a conscious effort to reduce their adverse impact on the environment outperformed the S&P 500 Index by a factor of 10.5 over the years 1996 to 2011.
These companies treat their stakeholders well, so their suppliers are happier to do business with them. Their employees are more engaged, productive, and likely to stay with them for the long haul. They are welcome in the communities in which they do business. And their customers are among the most loyal, according to Sisodia.
But it's not only profitability that motivates these corporations to adopt socially responsible practices. It's also the belief that for-profit businesses can be a force for economic and social good, more so perhaps than any other economic sector.
Businesses Drive Social Change
Consider, for example, the TATA Group, India's largest private employer, whose more than eighty companies employ 200,000 people in steel, automobile, software, consumer goods, and telecommunications ventures. About two-thirds of the equity capital of the company's parent firm, Tata Sons Ltd., is held by philanthropic trusts established in the 1860s. The TATA Group's founder, Jamsetji Nusserwanji, noted long ago that “in a free enterprise, the community is not just another stakeholder in business but is in fact the very purpose of its existence.” Decades later, Manoj Chakravati, another corporate officer, framed the company's mission this way: “Corporate Social Responsibility should be in the DNA of every organization. Our processes should be aligned so as to benefit the society. If society prospers, so shall the organization…”
To Ratan Tata, a former chairman of the TATA Group, writing with Stuart L. Hart, Aarti Sharma, and Christian Sarkar in the June 18, 2013, issue of MIT Sloan Management Review, “the maximization of profit is not a purpose; instead it is an outcome.” Their thesis is: “Profits are like happiness in that they are a byproduct of other things. Those who focus obsessively on their own happiness are usually narcissists – and end up miserable. Similarly, companies need a purpose that transcends money; they need sustainability strategies that recognize that you can make money by doing good things rather than the other way around.”
The strategy has worked well over the long term: Tata Chemicals first introduced iodized salt to address iodine deficiency, then fortified iron in Tata Salt to combat anemia. The company has also invented an affordable, nanotechnology-driven water purifier that has transformed the barren village of Mithapur in Gnjarat into a thriving community. The company went on to create an “Innovation Centre,” built exclusively around social issues and sustainable value. The initiative has been a leading driver of revenue, profits, and jobs.
A duty to contribute to the social good has recently been incorporated into Indian corporate law. The Indian Companies Act of 2013, which took effect on April 1, 2014, mandates large firms in India (including many American multi-national enterprises) to follow the TATA Group's lead and exhibit greater social responsibility. Firms with a net worth of Rs 5 billion (about US $82 million) or more, annual turnover of Rs 10 billion (about US $164 million) or more, or net annual profits of Rs 50 million (about US $820,000) would be required to invest at least 2 percent of their annual profits on CSR initiatives. Jamsetji Nuserwanji's legacy continues.
Or look at the Bosch Group, a leading global manufacturer of automotive, building, and industrial technology as well as consumer goods. Following a tradition established by its founder, the company sees social and environmental issues inextricably linked to its future: “If Bosch is to remain a stable company, [it must] come to terms with the instability of the world at present. Accelerating globalization, the need for environmental protection and impending energy supply shortages mean that Bosch's corporate strategy must take into account social and environmental concerns.” And, indeed, it does: the company has embraced the core labor standards of the International Labour Organization, acknowledging human rights, equality of opportunity, the rights of children, and fair employment conditions.
And then there's Mozilla Corporation, a wholly owned, taxable subsidiary of the Mozilla Foundation, which manages Internet-related applications such as the Firefox and SeaMonkey web browsers. The corporation, which handles the revenue-related operations of the foundation, invests most of its profits back into Mozilla projects to “promote choice and innovation on the Internet.” Mozilla is a sustainable, transparent community, which demonstrates that commercial companies can benefit by collaborating in open source projects. Market mechanisms support Mozilla's public-benefit mission.
To cite still another example, Raytheon, the international aerospace and defense contractor, is committed to energy conservation, safety, and diversity. MathMovesU, the STEM education initiative to which the company has contributed more than $100 million since 2005, helps build the U.S. talent pipeline to encourage the next wave of innovators and technologists. Pam Erickson, Raytheon's vice president of community relations, sees that, “Good corporate citizenship is good business.”
Garrett Hasenstab, the director of sustainability at the Verdigris Group, the real estate development group, seems to agree. He notes that the company's CSR policy is at the core of its daily operations. Verdigris' clients value its environmentally conscious work because they seek a healthier, more productive, energy-efficient world. No doubt he's right: customers and employees alike are demanding that corporations everywhere operate sustainability and ethically, thereby contributing meaningfully to the global community we share.
Perhaps most notably, TOMS Shoes has built its brand around a buy-one-give-one charity model ever since the company's founder Blake Mycoskie's heart was touched by the enormously disadvantaged barefoot