Leaders of public corporations are defined as successes or failures largely by the profits they generate for shareholders -- and the rise in their company's stock price. Yet in a world of 24-hour news media, bloggers and Web-based activists, and thousands of donation-hungry community groups clamoring for attention from big companies, the pressure for CEOs to address other issues can seem relentless -- and be a big distraction from focusing on the bottom-line.
The debate over the importance of doing good is heating up as many corporate leaders are broadening their constituencies to address the needs of other groups just as they do those of investors. Those "stakeholders" include employees, suppliers, customers, and the local community. It's a recognition, proponents say, of the need for corporations to manage their reputations as well as their brands. That doesn't sit well with traditionalists, for whom serving shareholders -- and delivering profits -- are the sine qua non of corporate capitalism.
BusinessWeek correspondent Brian Grow recently spoke with individuals on opposite sides of the debate: Robert Nardelli, chief executive of Home Depot (HD ), who is spearheading a push for big companies to boost their community volunteer work; and Milton Friedman, Nobel prize-winning economist and proponent of the view that companies have one, and only one, responsibility: to make money for shareholders. Here are edited excerpts of Grow's conversation with Nardelli. [for Friedman's take on the debate, see "Social Responsibility: 'Fundamentally Subversive'?"]
Q: Milton Friedman wrote a seminal article in 1970 headlined "The Social Responsibility of Business Is to Increase Its Profits." He still believes that today. What do you think?
A:There is a broader range of constituents -- and an even broader range of views [today]. The world is getting smaller through telecommunications and travel. It paints a different picture for the environment that we're operating in today than when I started in 1971.
Of course, my view was quite different then. I was looking up organizationally. Now I take a much different view of responsibility.
Q: Are we moving toward more of a stakeholder model for business? Rather than thinking just about the shareholder, do you have to think about the employee, the customer, the supplier, even the environmental activist?
A:Absolutely. I remember maybe a decade or two ago starting to talk [in speeches] about a holistic view to management. It's clearly true. One of things we compete most for in the marketplace is our [store employees].
I'm not sure that was the case [decades ago] to the degree it is today. Certainly, investors have more options. Two decades ago, they weren't investing outside the country. You're competing more -- and people look at you -- more holistically. Some analysts will tell you their investing strategy is based on the character and quality of the leadership team, even more so than the business.
Customers are more discerning than they were in the past. It brings a much broader range of constituents that we have to try to address and be thoughtful of. I don't think it should compromise the business strategy. But you have to take it into consideration.
Q: You're putting $25 million into the next phase of KaBOOM!, your project to build playgrounds. One of the things that critics of social responsibility raise is, how do you measure a return on investment of that $25 million? How are you measuring?
A:I'm not. I put that $25 million in the same category [as pay supplements for employees in the military]. People ask me, "Gee, Bob, what's the cost of that?" I say, "That's an investment." [They say], "Isn't it a burden to make sure all the benefits are taken care of?" I say, "No, that's a responsibility." I don't measure it. It's something we do willingly, with tremendous support from our board and tremendous support from our 325,000 associates.
Q: When you brought executives together in May to devise your plan for the Hands On Network's "Month of Service," which aims to raise the number of corporate volunteers by 6.4 million over two years, you put together an operational matrix. What was the purpose of that?
A:We have to look at this activity with the same eye that we look at business. I think corporations are best positioned to mobilize resources and funding. I wanted to be sure that -- in my personal work soliciting other CEOs to join [the Month of Service] -- that this project would be measurable and meaningful. You can't separate the way you run a company from the way you run [a social project].
Q: You've said that companies have a "unique capability" to mobilize outreach in the community. Why?
A:We have the resources. [Building off the work started by Home Depot founders Bernard Marcus and Arthur Blank], my ability to mobilize 325,000 workers is pretty significant, as opposed to an individual who's well-intentioned but doesn't have the following. There are a lot of events attended by celebrities and stars -- they can get the crowd out. But their ability to mobilize is limited. They don't have the geographic reach like SAP (SAP ), Dell (DELL ), Albertson's (ABS ), nor the monetary and physical capital.
Q: Researchers say that as Generation Y populates the workforce, they're more socially conscious and globally aware. They want to derive purpose out of the job they do every day. Do you see these projects as a way to give the employees something extra from their job?
A:Our team loves to build things. It's what they know how to do, it's the skill set they bring. When you look into the eyes of these associates, many times it becomes emotional. Some of these saintly men and women who devote their lives to inner cities -- you know you have touched their lives.
We were in Washington, D.C. [building houses] and these young men and women were talking about service. Maybe I wasn't paying attention in school, but I don't remember people coming in and talking about service and giving back. It's a very important part of what we do today -- and will become more important.
Q: Researchers are also saying companies are finding ways to derive business value from good works. By staying focused on refurbishing homes, building playgrounds, and disaster relief, do you see ways to generate good will to influence purchase decisions or do develop new products?
A:I'm not aware of any products we've developed. I do think there's good will. We've seen it time and again. It's not why you do it, but it's a benefit. I would challenge anybody to say, "Here is a hard return-on-investment on why you do it." You do it because the board, senior management, the people believe in it. It's just the right thing to do.
Edited by Patricia O'Connell