For better or worse, capitalism is a powerful force. It has transformed economies, fueled inventions that address hunger and poverty, and connected us through an amazing, global digital network. But it also has depleted the Earth’s natural resources, cemented inequities, and spread waste and pollutants to the deepest oceans and the highest mountaintops.
In response, many companies have created social impact programs and added environmental, social, and governance (ESG) statements to their annual reports. But these changes are often ineffectual. Any time social impact comes into conflict with the corporation’s need to generate profit, it loses.
I’ve been wrestling with this challenge my entire career, and what I’ve found is that there is a better way. The key is to align social impact programs with capitalism’s fundamental driver: making a profit.
The limitations of corporate social responsibility
While working in social impact at Nike, Yahoo, and Google, I started to understand how we can use the awesome force of capitalism for good. And I came to realize that the way most corporations engage with social impact actually limits it before it can reach its full potential.
In most cases, a corporation’s social impact division is an adjunct to its main business, implemented for public relations value, or because investors are demanding it, or perhaps to comply with laws.
These social impact arms are often funded and operated separately from the core business, to protect the “sanctity” of that work. This means social impact is a cost center, still running counter to the organization’s most fundamental goal of making a profit. As a result, corporate social responsibility leaders still need to “make a business case” (i.e. beg) for the funding to ensure their initiatives’ success, often leaning on brand affinity and employee pride as justification.
Frankly, it’s not enough. And because social impact is separate from the revenue-generating parts of the business, efforts to do good don’t benefit from the growth or momentum of the company—which constrains the impact.
To be truly effective, we need to move beyond thinking of corporate social responsibility as a strictly philanthropic endeavor.
To maximize social impact, generate revenue
One of the most effective ways to increase positive impact and create long-term business value is to make the social impact organization a source of revenue.
At most companies with social impact arms, this would be a profound change. It also would be the simplest, most effective way to align the objectives of social impact with those of stakeholder capitalism—turning business as usual into a net positive for society.
This approach is how we have managed Twilio.org, the social impact arm of Twilio. Our team sells Twilio’s software and services to nonprofits at a reduced rate, which generates revenue that we use to grow all of our social impact programs. (Those additional programs include grant-making, so nonprofits that can’t afford even our reduced rates are not closed out of the ability to leverage technology to do good.) As a result, our product, our people, and our capital are all being used to drive impact.
Twilio.org has been able to grow 150% year over year, creating a far greater impact than it would have otherwise. Twilio.org’s revenue now allows us to support thousands of nonprofits that collectively help hundreds of millions of people a year.
Based on what we’ve learned, here are a few important tips for making a profit-generating social impact organization successful.
Focus on impact
The social impact organization generates revenue to reinvest in social impact. It’s not profit for profit’s sake. The goal is to make the social impact organization self-sustaining and self-growing, using its revenue to fund its operations and keep increasing impact.
Leverage the profit centers
Social impact needs to be aligned with a corporation’s basic revenue-generation engine. If you sell athletic gear, sell eco-friendly options to customers who want that. If you’re in the content business, look for ways to generate revenue from ads aligned with social impact.
Start at the top
The model works best when the social impact organization reports directly to the business unit responsible for generating revenue. At Twilio, I report to the CEO; at other organizations, it might make more sense to report into sales or product.
Define impact metrics
Important as it is, revenue cannot be the only metric. If the social impact organization generates revenue but has no measurable impact on the social or environmental issues it intended to address, then that’s a failure of the organization. Revenue is just the means to achieve your ends.
Be clear about core values
Your social impact doesn’t mean much if your company is simultaneously dumping toxic waste or treating employees poorly. So in the end it comes down to a fundamental question: What do you want this company to stand for? Once you can answer that clearly, look for ways to achieve this higher purpose while using revenue generation as the fuel for impact.
Follow this blueprint, and the pieces will fall into place. And guess what? A higher purpose is what customers, employees, and investors are looking for, too. A company that stands for something other than just making profit may, in the end, actually generate more profit.
There are so many ways to generate shareholder value while building a better world. It’s time to line up these two aspirations to put the full force of capitalism behind doing good.
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August 23, 2021 at 06:01PM
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There’s a better way for companies to generate social impact - Quartz
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