From the Desk of the President

Born or Made: Successful Execution of 3S

When it comes to profit, there are two kinds of business people: those for whom there is profit, only profit and nothing but a profit; and those for whom there is a bigger goal behind making a profit.

Are business people born that way or created?

Perhaps perceptions about profit are generational issues. In college we hope to “change the system”, ten years later we find that the system has changed us… well, most of us. Or perhaps it is misalignment of goals and rewards. Although at the top level, corporate executives promote commitment to social goals, at the mid-levels employees are being compensated on lowering costs, not on delivering on these enigmatic social goals.
Here is one episode from my past career that illustrates the point. I ran a Central and Eastern Europe (CEE) division for a global company (let’s call it Global Inc), when the tragedy in Bieslan School occurred on September 1, 2004. The whole world was shaken when 1,100 people, including 777 children, were taken hostage by Chechen terrorists. Our Moscow office was especially affected after 334 hostages, including 186 children, were killed. Condolences and support e-mails were pouring in to our Russian employees. At the CEE division of Global Inc. we created a Bieslan Fund: Global Inc. employees from all over Europe voluntarily contributed money to support the Bieslan community. Within the CEE executive team, we had made a decision to dedicate 2% of profits from certain product lines for Bieslan. I had budgetary responsibility and I strongly supported this initiative. We publicized the Bieslan Fund and kept it transparent, letting employees and clients know how much money had been raised for the Bieslan community.
Within 12 hours of announcing the Bieslan Fund, I received a call from the President of the Global Inc. praising our team on this initiative. He sent a company-wide e-mail pointing out how important it is to show support for communities we serve, especially in such tragic moments. I shared this with my executive team. All of us grew few inches taller, walked more decisively, and committed extra energy that was released to sell designated products which supported the Bieslan Fund.

Here is the kicker: Within next 12 hours I received yet another call, this time from the CFO. He opened the conversation with accusatory statements: how dare I make a decision to lower the profits of my division, which reflected on the performance of the whole company? The Street does not care about this social staff of yours – he said. The Street cares only about margins. That call I did not share with my executive team. We proceeded with the Bieslan Fund through the quarter. In fact, it turned out that the CFO was wrong about lowering profits, as incremental sales at higher margins more than offset the 2% profit “loss”.
It is not enough to make a verbal statement about the commitment to social goals. To successfully execute this commitment, companies must walk the talk. Specifically:

To successfully execute this commitment, companies must walk the talk. Specifically:

  • Social goals need to be presented in terms of business case: Initially, I failed to make a compelling business case to the CFO for allocating 2% profits to a social cause. I could have argued the incremental sales created by employee engagement. I could have pointed to lowering discount pricing, as clients were eager to buy our products at the full price with knowledge that parts of the proceeds would support the Bieslan Fund. I could have emphasized the impact on branding among existing and potential clients, or an impact on employee morale and loyalty. I could have projected the increased sales value and actual profit losses being offset by sales volume. In short, I needed to try to argue why the “Street” should care.
  • The reward system has to be aligned with the goals: The CEO rewarded our team with great recognition. However, the CFO did not share this perspective. If anything, the CFO wanted to punish me for “lack of business focus”. In effect, I could not offer additional recognition, at least not in such a way that the CFO would learn about it. Global Inc., at that time, did not have benchmarking tools that would have helped to evaluate managers and employees on their commitment to social goals.
  • The social goals need to be quantified: Only when we measure certain characteristics, can we influence or manage these behaviors. The employee evaluation forms at Global Inc. were not even capturing one’s involvement in the Bieslan Fund, unless a manager wanted to make a special note in a free format. Because this activity did not impact the reward compensation, they did not bother to enter it into the performance appraisal.

As business people applying sustainable and socially responsible sourcing strategies (3S), we can still enjoy making money while making a difference!

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