Harvard Business School just released its first study of US competitiveness, reporting that almost two-thirds of US businesses will locate their new plants outside the US. President Obama addressed the issue in his State of the Union address, citing the same blocks to US competitiveness the study does, namely poor education and training, our complex tax code and regulations, crumbling infrastructure, and lack of political soundness.
None of this is surprising. But for me, one finding was truly shocking: only 22% of US managers believe that doing good for their communities will help their business.
Has the economic pressure really had that extreme an impact? I remember just a few years ago that managers believed that doing good for their communities was critical to their business and their reputations. Over the 15 years I consulted to Cisco, I heard President (then Chairman) John Morgridge say over and over, "We do well by doing good" and prove it with network training programs for poor students that expanded Cisco's industry and customer base. Even today, Cisco is highly rated by CSRHub for its corporate citizenship. In 2008, an Economist study showed that over half of its executive readers linked good deeds to increases in their brand value and over 40% believed that corporate social responsibility (CSR) led to decisions that were better for business in the long-term. As recently as 2009, a study by the IBM Institute for Business Value found that 60% of business leaders worldwide believe CSR had increased in importance over the previous year. Only 6% said it was a lower priority.
Why are the results so different now? It's not because HBS alums are so different from other managers. (Full disclosure: I am an HBS alum.) At the school's 2008 Alumni Conference, the topic "The Future of Capitalism" was discussed on the very day that Lehman Brothers collapsed. Nearly every speech was dedicated to the idea that HBS grads could improve financial performance and reduce corrosive social inequity by pursuing returns from social contributions. And speaker after speaker got standing ovations.
And I'm pretty sure the study's disheartening results cannot be written off as bad study design. The study's author, Michael Porter, is co-founder of a consulting firm that specializes in CSR, or as they brand it, shared value, and he would not have messed up this unique measurement opportunity.
Which leaves us with the question: Could HBS alums and other business leaders have abandoned their principles under the pressure to survive? Or is there some other reason for the dramatic decline in support for doing good?
A clue could lie in what's happening in China. In December, Chinese environmentalist Ma Jun, director of Beijing's Institute of Environmental and Public Affairs, spoke at New York's Business and Human Rights Resource Centre about his "name and shame" approach to environmental compliance in China. Using the country's lethal heavy metals pollution as an example, Ma explained how citizens use their consumer power to shame companies into cleaning up their act.
China is using brand power to change corporate behavior. Just like we used to.
Before the recession, US citizens used to voice their outrage with product boycotts. Remember diamonds? Transfat? Fur? Victoria's Secret's use of virgin paper for its catalogues? US companies may have grown lackadaisical because consumers have stopped using their pocketbook power to influence corporate behavior. If all American consumers care about is price, why should companies focus on anything other than reducing production cost?
Obama was able to kill the Keystone pipeline only after a massive show of outrage, including countless petitions and a hands-around-the-White-House protest that netted over 10,000 demonstrators. It was only the support of the people that gave Obama the clout to say no to Keystone. The same could be true of those HBS study participants: without the support of consumers to do the right thing, it's hard to convince boards to invest in communities. Especially when the results tend to be long-term and managers are measured by short-term profit.
Public participation does work, in China and here too. Just last year, a million big bank customers pulled their accounts to protest debit fees, a charge that hits lower income people especially hard. Those banks were "shamed" into dropping their plans. Consumer pressure is effective. We've just got to figure out how to ratchet it up again.