Multirational multinationals The shifting business ethos

To demonstrate a prosthetic arm Kamen designed for the Defense Advanced Research Projects Agency, he showed a wearer overcoming daily inconveniences—peeling a banana and sipping coffee—to display the enhanced motor skills.² His gravelly Long Island frankness emphasizes the intuitiveness of his designs, belying their full complexity. Kamen knows how to be understood.

Yet igniting interest in a solution to water scarcity has been an uphill climb for Kamen. His team prototyped a water purification unit, the Slingshot, back in 2003. The Slingshot is capable of churning out a thousand liters of purified water daily while running on a variety of energy sources, including cow manure. Kamen and the rest of the team hope the unit will provide safe drinking water to more than a billion people. The purifier produces drinkable water out of even the murkiest contents, as Kamen once demonstrated on The Colbert Report, when Stephen Colbert skeptically poured a bag of spicy, bright-red Doritos into the Slingshot and produced colorless water. Kamen said it would yield purified water from ocean water, a “50-gallon drum of urine,” and even toxic waste.³

Entertaining antics aside, the Slingshot stands to prevent 3.4 million deaths annually attributed to waterborne disease.⁴ Kamen has personally invested $50 million in the solution. Unfortunately, finding a buyer for the Slingshot has proven difficult, eliciting waves of gracious declines or unresponsiveness from big players such as the United Nations and large nongovernmental organizations (NGOs). The negative responses prompted Kamen to realize that “the NGOs aren’t the ones who can help us get the machine into production, scale it up, [and] bring down the cost curve.”⁵

Struck by its global reach across even the most rural regions of more than 150 countries, Kamen set his sights on Coca-Cola instead. In 2005, he developed a vending machine serving custom blends of carbonated beverages for Coca-Cola in the hope of building a future partnership.⁶ Now Coca-Cola is distributing the Slingshot, beginning in rural Ghana, as part of the company’s extensive water stewardship efforts.⁷ The company targets numerous aspects of water use, beginning with its own production practices. Thanks to improved water stewardship, Coca-Cola’s water use has remained flat even as production rises steadily.⁸

Partnering with Kamen to expand access to clean water supports Coca-Cola’s already far-reaching clean-water initiatives. Coca-Cola also partners with organizations like The Nature Conservancy and USAID to improve water management.⁹ Meanwhile, Coca-Cola’s Safe Water for Africa program supplies water to areas of West Africa where water resources have deteriorated.¹⁰

Multinational corporations like Coca-Cola can scale social innovations faster and more widely than other institutions can. This capability magnifies the significance of those global companies that are elevating social causes from a footnote to a primary consideration in business decisions.

The concept of pursuing a double bottom line, in which companies seek to maximize financial and social impacts, or even a triple bottom line, with environmental benefits added to the equation, has gained traction among large, established firms and fledging enterprises alike. Corporate responses vary from beefing up corporate social responsibility (CSR) initiatives to reinvesting profits back into a company’s social mission. In recent years, CSR has taken off. Contrast the mere 70 CSR reports published in 1990 to the thousands produced today.¹¹ In 2006, only 25 percent of Fortune 500 companies produced CSR reports. Today that figure has climbed to 80 percent.¹² While an increase in CSR reporting does not necessarily correspond to an increase in overall social impact, a rise in reporting does signal a mind shift—a realization that corporate profits aren’t the only meaningful product of a Fortune 500 company.

A few decades ago, Kamen’s idea of partnering with a large multinational corporation to wipe out waterborne disease would have struck many as bizarre. The widely held notion of businesses’ role in society was succinctly captured in the title of Milton Friedman’s famous 1970 New York Times piece: “The Social Responsibility of Business Is to Increase its Profits.”

Recent years, however, have seen many business leaders rethinking this basic premise. John Mackey, the founder of Whole Foods Market, is at the forefront of this evolution. A proud libertarian, Mackey strongly and unapologetically champions the free market. Nonetheless, his central idea, which he writes about in his book Conscious Capitalism, is that investors are only one of multiple constituencies with which a company must engage.¹³ Customers, employees, vendors, and the community at large represent other important stakeholders. Since a company’s choices can affect each stakeholder, it should pursue value for all constituents to create lasting financial and social returns.¹⁴

This concept at the core of the Whole Foods Market mission has caught on. Each year, Mackey’s Conscious Capitalism Institute draws executives from dozens of large firms, including REI, the Container Store, and Trader Joe’s, to discuss how they can bring the ethos to their own companies.

In a similar vein, Harvard Business School professor Michael Porter and Mark Kramer, founder of the social-impact consulting firm FSG, have evolved Jed Emerson’s concept of “blended value” into a related concept they call “shared value.” The idea “involves creating economic value in a way that also creates value for society by addressing its needs and challenges.”¹⁵ Businesses that practice shared value connect company success with wider social progress.

“We can make market forces work better for the poor,” explains Bill Gates, “if we can develop a more creative capitalism—if we can stretch the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering from the worst inequities.”¹⁶

What Mackey, Gates, Emerson, Porter, and Kramer have in common is the belief that business should no longer solely cede the solving of social problems to government and nonprofits. The specific terms may vary, but the concepts converge around the idea that caring solely about profits is simply not rational anymore and in the long run is actually a liability. The ripples of business decisions across ecosystems, cultural and environmental, are too wide to ignore. If a company ignores the social impacts—both positive and negative—of its mainline operations, it does so at its own long-term peril. For this reason, a business must increasingly consider multiple factors, both internal and external, in its decisions. Hence the term multirational multinational.

A growing body of research supports the notion that such an expansive view of a company’s role can boost profitability. Paul Griffin and Yuan Sun of the University of California Davis and Berkeley studied a group of companies that have issued CSR reports. The researchers found that the companies’ shareholder perceptions improved and that the aggregate market value of the companies rose by $10 billion after the reports were released. Surprisingly, smaller companies benefited the most from reporting. A 2007 study from the Wharton School of Business demonstrated that companies striving to address the best interests of all stakeholders rather than just shareholders outperform the S&P 500 by a significant margin.¹⁷

Many mature companies’ first involvement with the solution revolution is via corporate philanthropy. While companies have always invested in their communities, the sheer size of today’s contributions and their global impact is unprecedented. In a study by the Committee Encouraging Corporate Philanthropy, 214 respondent companies reported collectively giving more than $15.5 billion in 2010, billions more than the UN Development Program’s annual spending. Fully 82 percent of the respondent companies run their own foundation or trust.¹⁸

But philanthropic action alone runs counter to the premise of a multirational multinational. Instead, companies are increasingly applying their competitive capabilities and expertise to challenges that nonprofit organizations have struggled with for decades. Cincinnati-based Procter & Gamble is partnering with UNICEF to wipe out tetanus in Africa by 2015. Profits from the sales of Pampers diapers contribute to free vaccines for expectant mothers and newborn babies, through a program that has immunized over 300 million to date and raised widespread awareness about the issue.¹⁹

Unilever is another corporate trailblazer. Since 2000, it has partnered with NGOs, banks, and governments to sell cleaning products in parts of rural India where sanitation is a constant concern. Unilever employs women in rural villages to sell the products, lifting them and their families from poverty as they strive to address the sanitation needs of more than 600 million underserved Indians.²⁰ This base-of-the-pyramid approach, discussed in more depth later in the book, introduces a brand-new market segment to Unilever—and underscores that doing good can often also be good business.

Table 1. Sample initiatives of multirational multinationals

There is no shortage of skeptics of the corporate push into social innovation. On the one hand, many conservatives and libertarians argue that companies best serve larger societal interests not by focusing on social good but by employing workers and meeting consumer demand. On the other hand, some liberals remain skeptical of business intentions, viewing CSR and other efforts as merely self-serving exercises in corporate PR, as some of these efforts are. Still others assess the impacts of CSR and corporate social innovation initiatives as greatly overblown. In The Market for Virtue, political scientist David Vogel argues that while there might be a market for firms that do good, there is also one for less virtuous firms and “the size of the former does not appear to be increasing relative to the latter.”²¹

Each perspective has a modicum of truth to it. What they all tend to miss, however, is the growing alignment of financial and social incentives that is pushing companies to move beyond traditional CSR. When larger societal problems are seen not as just charity but as actual market opportunities, then actions by business are more scalable and viable over the long term.

As a result, corporate contributions often align with each company’s unique capabilities and objectives (table 1). Health care companies tend to focus on health causes. Large technology firms with highly sophisticated educational requirements often contribute to higher education. Internationally, contributions to education and health account for more than half of corporate giving, dwarfing all other categories, including the arts and disaster relief.²²

Many companies, then, are becoming multirational, integrating their corporate and social missions. Mark Kramer says that “Social change becomes part of the competitive equation—companies have to compete around their ability to improve social conditions and achieve social outcomes.”²³ Consumers are helping drive this trend. In an Edelman global survey, the majority of consumers viewed corporate donations as insufficient, instead urging companies “to integrate good causes into their day-to-day business.”²⁴