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CASE 5.6 The Debate over Doing Good Brian Grow, Steve Hamm, and Louise Lee Grow, Hamm, and Lee regularly report on at this activity with the same eye that we look at busi- current financial and corporate issues. ness." Nardelli says. Yes, companies have long paid lots of money, It's 8:30 a.m. on a Friday in July, and Carol B. Tom and lip service-to philanthropy and public service. is starting to sweat. The chief financial officer of But as Nardelli's confab indicates, managers from all Home Depot Inc. isn't getting ready to face a firing parts of American business are increasingly seeing squad of investors or unveil troubled accounting at social responsibility as a strategic imperative. In June, the home improvement giant. Instead, she and 200 General Electric Co. released its first "Citizenship other Home Depot employees are helping to build a Report" as a way for interest groups to assess its social playground replete with swings, slides, and a jungle performance from air pollution to volunteer hours. gym at a local girls' club in a hardscrabble neighbor That followed the announcement in May of GE's hood of Marietta, Georgia. Dressed in a white Home ecomagination program, which will invest billions in Depot T-shirt, a baseball cap, and blue capri jeans, environmentally friendly technologies. IBM uses its Tom tightens bolts, while others dump wood chips, On Demand Community-a 40,000 employee volun mix concrete, and sink posts. The company, together teer program--as a way to bring IBM technologies with nonprofit playground specialist KaBOOM! to schools and community centers and plug its brand. plans to build 1,000 more such kiddie parks in the Even the legendarily hard-nosed Wal-Mart Stores Inc. next three yearsand spend $25 million doing it. has come around to the cause. "We thought we could Is this any way to build shareholder value at sit in Bentonville (Arkansas), take care of customers, Home Depot, where the stock has been stuck near take care of associates and the world would leave us $43, down 35 percent from its all-time high? Chief alone," CEO Lee Scott said at a recent analyst confer- Executive Robert L. Nardelli and his troops think so. Last year about 50,000 of Home Depot 's 325,000 ence. "It doesn't work that way anymore." employees donated 2 million hours to community service. Now, Nardelli is trying to encourage more BEHOLDEN TO MANY companies to volunteer at Home Depot's pace. At his invitation, executives from twenty-four compa What's behind this realization? At the very mini- nies and foundations gathered for five hours at Home mum, it's clear that companies recognize that it takes Depot's Atlanta headquarters in May to discuss a robust, sharp public-relations strategy to navigate community service. Attendees included Lawrence through the mines of today's operating environ- R. Johnston of Albertson's, F. Duane Ackerman of ment. Among them: increased regulatory scrutiny: BellSouth, Gerald Grinstein of Delta Air Lines, and a global, twenty-four-hour news cycle; and com- William R. McDermott of SAP America. On Sep munities hostile to scandal-tarred big businesses. tember Ist these CEOs and others will kick off "A But what Nardelli suggests is something deeper. In Month of Service," an ambitious plan, developed fact, it's a growing embrace of so-called stakeholder with community group the Hands-On Network, to theory, which posits that companies are beholden not deploy corporate volunteers on 2,000 projects across just to stockholders but also to suppliers, customers, the country, and raise the total number of volunteers employees, community members, even social activ- by 10 percent, or 6.4 million, in two years. "We look ists. That's quite a departure from the long-dominant From Business Week, August 15, 2005. 208 HONEST WORK notion that corporations' only duty is to increase controversy over its sweatshops erupted several years profits for shareholders. "Things have become a lot ago, managers mistakenly believed they could afford more interdependent," says Nardelli. "There are a to ignore the outcry simply by cranking out hip shoes. broader range of constituents." "It is no longer an option to sit on the sidelines," says Such platitudes, of course, make critics cringe Bradley K. Googins, executive director of The Center The Nobel prize-winning economist Milton Fried for Corporate Citizenship at Boston College. man, ninety-three, casts a long intellectual shadow over the debate. In a seminal 1970 New York Times Magazine article, he declared social initiatives "fun- YOUTHFUL IDEALISM damentally subversive" because they undermine the profit-seeking purpose of public companies and More important, the calls for change are coming waste shareholders' money. Even today, Friedman, from inside the corporate walls. A new generation a senior fellow at Stanford University's Hoover In of employees is demanding attention to stakehold- stitution, rails at the idea that managers elected by ers and seeking more from their jobs than just 9-to-5 shareholders to run companies should spend their work hours and a steady paycheck. The number of profits on social causes. "Adam Smith said in 1776: Gen Yers-those born between 1977 and 1994-in "I have never known much good done by those who the working world has grown 9.2 percent since 1999, profess to trade for the public good. It's a good while the number of Gen X workers remained flat. quote," says Friedman and baby boomers declined 4.3 percent, according to There's no doubt that a surge in community out Robert Szafran, a sociology professor at Stephen F. reach and do-good deeds is, in large part, a gussied Austin State University in Nacogdoches, Texas. As a up bid for good favor. Tarred by a raft of corporate result, Home Depot and others are finding that bur- scandals from Enron to World Com, social outreach nishing an image as a socially responsible company can be a way to regain the high ground. That's prob- helps to attract younger workers, at all levels. One ably one reason corporate giving hit $3.6 billion last of the things we compete most for in the marketplace year, an all-time high, up from $3.5 billion in 2003, is our associates," says Nardelli. "I'm not sure that according to philanthropy research group the Foun was the case [two decades ago)." dation Center. Indeed, Nardelli argues that a "dark Take Sewell Avant. The twenty-five-year-old veil" hangs over big business. It is exacting tangi senior procurement analyst graduated from the ble penalties: Based on its $91 billion market cap, Georgia Institute of Technology in 2002. During Home Depot was required to shell out an estimated college, he cleaned churches and did regular social $1 million last year to fund the Public Company projects with fraternity brothers. Now he's carry- Accounting Oversight Board, an outfit created by ing on that tradition at Home Depot. He took a day the Sarbanes-Oxley corporate reform bill to moni off, without pay, to help mix concrete at the play- tor the work of auditors. In effect, say Home Depot ground project in Marietta. His entire department executives, all public companies are paying for the will do more kiddie-park construction on a weekend sins of a few. in August. For Avant, volunteering adds meaning to But more than mere public relations appears to be at his day-to-day job. "Employees are trying to marry work here. Companies are being forced to address the their work and nonwork lives. If the company gives concerns of customers, employees, and investors-in them a chance to do that, then they're happier," says order to keep them. Such pressure is why last year C.B. Bhattacharya, associate professor of marketing Gap Inc. halted relationships with seventy of its at Boston University's School of Management. overseas factories over alleged labor abuses, and has That's why younger companies are baking the for the past two years issued a social responsibility social responsibility concept into their culture-and report. Or why Nike Inc. is now a world leader in set demanding investors accept the cost. Costco Whole- ting safety standards for overseas workers. When the sale Corp. has long offered generous compensation IS "THE SOCIAL RESPONSIBILITY OF BUSINESS... TO INCREASE ITS PROFITS"? 209 to its workers, to the scorn of Wall Street and the and tomato-no burger. Then grocery giant Alb- detriment of its stock price. In the 1980s, network- ertson's, through Jewel, its Midwest grocery chain, ing giant Cisco Systems Inc. opened its first office launched Fresh Rescue to boost supplies of perish- in East Palo Alto, California, a run-down neighbor able meat, dairy, and vegetable products for local hood amid the prosperity of Silicon Valley. Cisco food banks. The result: Last year, the Northern Il- Chairman John Morgridge worked as "principal for linois Food Bank supplied 386 shelters with 740,000 the day" at a school next door. We're in business pounds of meat, double the number from the year to get results. This is just a different currency," says before. The payoff for Albertson's: goodwill-and Tae Yoo, Cisco's vice-president for corporate affairs. perhaps a few more shoppers. "We don't look for any Indeed, it has been a rude awakening for compa- statistics," says CEO Johnston. "This has to be in the nies that have not embraced a more strategic approach DNA of a company." to social responsibility. For years Wal-Mart has been Even evangelists such as Nardelli stop short of a top corporate donor. But as the company's image saying that companies should divert money from was pummeled by labor unions and lawsuits, re other strategic priorities to support corporate social search showed its fragmented giving generated little responsibility. But at corporations like Home Depot goodwill. The reason: Few people could remember and GE, good works are being bred into Big Busi- exactly what or whom-Wal-Mart supports. Now, ness. "It's just the right thing to do," says Nardelli. it's giving its community Outreach a sharper focus. Good PR? Sure. Money well spent? The goodwill "Society has changed," says Betsy Reithemeyer, ex refund could be in the mail. ecutive director of the Wal-Mart Foundation. "If you are the gathering place of the community, then you have a responsibility to it." Qulogs In fact, some executives argue that a company should develop a social responsibility platform- even if it doesn't add to the bottom line. In 2003, Wayside Cross Ministries, an Aurora, Illinois, shelter for abused women and men, couldn't obtain enough ground beef for meals. On hamburger days at Way- side, some residents ended up eating buns, lettuce, OU In our class, the cases are relatively short, but do contain a number of different factors to examine. Some are problem situations: how and why to resolve, using the information from the readings to help guide your decisions. Some are descriptions of situations and you need to determine what to focus on for discussion and analysis. The aid reading helps you to develop a process for reading and analyzing the cases. What I expect in your case report: a. What is the issue/problem b. What are the important factors c. What are alternatives d. What is your recommendation and why