Corporate Social Responsibility…and Sustainability

Philip KotlerKellogg School of ManagementNorthwestern University

Perugia, ItalyJune 9, 2016

Greetings• I want to thank all of you for coming to Perugia to celebrate

the launching of my new book, Confronting Capitalism, published by Hoepli, titled: Ripensare il Capitalismo• I want to thank particularly:• Alberto Mossone, for finding a publisher for the Italian

edition of Confronting Capitalism and conceiving this event together with Marco Raspati of Nexo Corporation, who had also organized a great PKMF Italy 2015 in Milan• Brunello Cucinelli who wrote a foreword to my book and

hosted this event in his wonderful Theatre in Solomeo• Oscar Farinetti, who also wrote a foreword to my book.

Confronting Capitalism• I did not write the book to replace Capitalism,

only to make it better.

• I listed 14 shortcomings of modern Capitalism and proposed reasonable solutions to each.

• The biggest problem is the growing inequality of income.

• If workers are not paid enough, it will hurt capitalists as well.

Is Slower Economic Growth Inevitable?

Pessimists• “I think growth probably is going to be slow in terms of aggregate

GDP over the next 50 years…Larry Summer, former President of Harvard

Optimists• “We will soon be able to meet and exceed the basic needs of

every man, woman and child on the planet. Abundance for all is within our grasp.” Peter H. Diamandis, founder of the X-Prize and of the new Singularity University, in his new book Abundance.

Other Problems of Capitalism

• How to provide enough jobs?• A factory can be operated by one person and a dog.• Robots will do most of our tedious work.

•Will financial institutions take over most of our industries?

• How to prevent industry from polluting and damaging our environment and climate?

Still Other Problems of Capitalism

• How to smooth the business cycle?

• How to get companies to cover their social costs?

• How to get companies to practice sustainability?

TO GET DEEPER ANSWERS TO THESE QUESTIONS, PLEASE READ MY BOOK.

Democracy is at Risk• Not only do we have to repair Capitalism. We also have to repair

Democracy!

• We are moving from a Democracy to an Oligarchy.• We vote in politicians.• Politicians need funding and get it from big companies and the

wealthy 1% and vote their interests. • Neither voters or Congress runs the country.

• “Capitalism is eating our Democracy.”

Democracy in Decline• So I wrote the book shown on the right. It

will be published this July.

• Note that I represent the American flag using a great number of $ signs.

• I identified 14 problems in Democracy, • Voter problems• Campaign finance, • Gerrymandering• Lobbying, etc.

Companies Must Choose Goals• Capitalism originally assumed infinite resources and infinite

human needs. We now recognize this endangers Planet Earth.• Paul Polman, CEO of Unilever, made the following

statement: “Our ambitions are to double our business, but to do that while reducing our environmental impact and footprint… It has to be done via more responsible consumption.”

• Can economic growth and sustainability really be reconciled?

•What does Polman mean by “more responsible consumption”?

Business Mindset 1.0Build Efficiency

1. Find a need or create a need and fill it2. Buy labor and supplies as cheaply as possible.3. Maximize the near term profits of the owner or shareholders

Company examples

• Robber Barons• Chemical companies dumping in water• Timber companies not replenishing trees• Overfishing

Business Mindset 2. Build Preference and Satisfaction

• The company now focuses on fine tuning its 4Ps to meet the target customers evolving wants and values better than the competitors.

Business Mindset 3. Building a Strong Brand

•Much of the company’s effort in this stage goes into exploiting its brand potential by multiplying new and successful offerings.

Unilever Dove brand

Business Mindset 4.0Stakeholder Beneficience

• The company starts thinking beyond its shareholders to its stakeholders: its employees, suppliers and distributor partners and the communities where it operates. It aims “to create shared value.”

• Run the business to be long-lasting• Invest adequately in R&D and innovation• Maintain a strong infrastructure • Protect and enhance the brands

Company examples• Starbucks, Patagonia, Lego

Business Mindset 5.0Reduce Social Harm

1. Reduce harm to the environment (factory smoke or coal burning)2. Reduce fat, salt and sugar in our food products3. Build cars with lower fuel costs

Companies:• DuPont• Timberland• Toyota• Kraft

Business Mindset 6.0Society Improvement

The company starts thinking about the welfare of (1) communities and (2) the planet1. Take a leadership position in sustainability2. Help build better communities where you operate.3. Support higher minimum wages and more adequate incomes.

Company examples:• Starbucks• Benefit Companies

Listen to the Voice of the Consumer

•Middle class customers learn that the industrial food system is filling them with too much sugar, salt, fat and preservatives, making them obese. People will increasingly buy from companies who care about their health. • Global consumers worry that their chickens and meats and

food products are impregnated with chemicals.• They worry about GMO (genetically modified organisms)

modifying the gene structure of their foods in the pursuit of disease resistance but resulting in a significant number of allergy risks to people.

Listen to the Voice of the Planet• We are witnessing more storms, hurricanes, and earthquakes in addition

to melting ice caps. • Since the 1970s, we have lost 768,935 square kilometers of rainforest,

which is more than twice the size of Germany. • In the middle of the Pacific Ocean, there is an estimated 270,000 square

mile area the size of Texas of debris and plastic particles. • The CO2 levels are higher than they have been at any time in the past

400,000 years. • Over the past 500 years, we have lost 322 species as a result of human

activities. • The number of blue whales in the Antarctic used to be 239,000, now

estimated at between 5,000 to 12,000.

We Need a Better Metric than GDP

•GDP says nothing about the quality of the outputs. It ignores the costs that have been incurred with that growth: more air and water pollution, more traffic congestion, more long hours of work and less leisure time. It says nothing about how the increased wealth is distributed.

•Better metrics would be captured by Happiness Indices, Well-being indicators, etc.

Companies Must Decide

•We do not state that businesses must accept lower profitability for the sake of ethical behavior.

• Sustainability is not just a matter of adding an extra cost. Its benefits hopefully will exceed its extra cost.

•We would argue, along with CEO Paul Polman of Unilever, that

higher profitability is compatible with higher ethical behavior.

Pessimism vs. Optimism

• Each attitude will lead to a self-fulfilling outcome.• Pessimists will refrain from doing things to produce

strong economic growth.• Optimists will encourage innovation, investment, and

entrepreneurship and produce strong economic growth.

• Optimism beats Pessimism!!