Studies show that our country’s faith in corporate leadership is at an all time low. Continual stories about corporate scandals and fraudulent acts have caused many business leaders to reexamine their role within the company and, more importantly, the meaning of their business in the society at large.
As a reaction to the growing perception that corporations exist solely for their own benefit and profitability, there is more pressure on leadership to reinvent company images and goals to gain a competitive edge. Often referred to as the fourth sector, the for-benefit business model is a hybrid business model driven by both social purpose and financial promise. By emphasizing social responsibility over profitability, for-benefit corporations give customers reasons to think about the organization as more than a commodity and ultimately increase profits through its commitment to making a difference in the world.
Like for-profits, for-benefits provide products and services that attract consumers and contribute to the economy. However, for-benefits follow a stakeholder model instead of a shareholder model. Rather than focusing on driving profits to the company’s owners, the stakeholder model aligns customer, vendor, employee and community interests, so that the business’s activities benefit everyone. Today, leaders and companies that practice a stakeholder model may enjoy a competitive advantage over their peers.
Another advantage to the for-benefit model is its ability to create better relationships between all parties involved – customers, employers, employees, and suppliers. Good training, compensation, and advancement programs drive a socially responsible corporate culture, which will help attract the best employees. Also, when suppliers are treated as partners by companies that contribute to their success through collaboration, they are more willing to offer higher quality products and services at fair prices.
As leaders of for-benefit organizations, CEOs should set the ‘tone at the top’ and individually play an active role in the community while concurrently deploying corporate resources to support social initiatives. For example, a company can donate a percentage of its profits to charities and encourage customers, vendors, and partners to do the same.
Businesses are now realizing, more than ever, that prioritizing social responsibility will drive profits and create a positive public image for the for-benefit organization. Many for-benefit companies use their commitment to social responsibility in order to distinguish themselves in the marketplace from organizations that seem to be self-serving and have no public value. For-benefit companies are businesses where consumers will prefer to shop, employees will want to work, and the community will embrace.
About the author:
Rick Smetanka, CPA, is a partner at Haskell & White LLP, one of Southern California’s largest independently owned accounting and business advisory firms with offices in San Diego and Orange County. The firm serves the region’s public and private middle-market companies, specializing in real estate, mergers and acquisition and public companies services. For more information, call (858) 350-4215 or visit www.hwcpa.com.