Marina v. N. Whitman, professor of Business Administration and Public Policy at the University of Michigan, recently published a piece in The Conversation, “Corporate America Needs to Get Back to Thinking About More Than Just Profits.” In her piece, Whitman examines BlackRock chief Larry Fink’s recent directive for companies to contribute more to society—to do good in addition to doing well—if they want BlackRock as an investor. The Erb Institute spoke to Professor Whitman to learn more about this idea and the historical and current landscape of consumer and investor pressure on companies to “do good.”

Let’s take a historical look at companies “doing good.” In the past, how did companies do good, and what pushed them to do so?

If you track the line historically, in the decades following World War II, American companies had very little global competition. European companies and Japan were still in recovery, and developing countries hadn’t developed enough yet to be serious competition. The US domestic market was quite highly concentrated, so companies had a cushion of high profits, or what economists called rents, which they could use to give their workers steadily rising wages and good pensions. They could also give the communities in which they operated various public goods of one kind or another. These things didn’t necessarily affect their bottom lines but were good for the community as a whole. At the same time, they gave investors steady dividends and rising prices.

Then all that sort of crumbled with all the upheavals of the 1970s, the two oil crises in 1973 and 1979 and the upheaval in the foreign exchange markets. Companies in other countries at this time were getting into a position where they could indeed provide genuine competition. So American companies that had been quite paternalistic because they had high enough profits to satisfy everybody started becoming lean, mean global competitors and moved away from a lot of the things that they had been doing for their workers, their investors and their communities.

What role have consumers played in pushing companies to do good more recently?

There’s no question that in recent years, the public in general has been paying much more attention to things like conditions for workers in other countries, not to mention concern about the environment, which has really developed over the last few decades. The media have called increasing attention to these issues. This is particularly because many American corporations are in fact multinational corporations, and there is pressure on them to take some responsibility for worker conditions, not only in their own companies but in supplier companies as well. This was a very new idea when the CEO of Nike first was confronted by it. But now, there’s a widespread acceptance, and companies are indeed trying in different ways to put pressure on their suppliers to treat workers better.

At the same time, American corporations are always pressuring suppliers for lower prices—and, naturally, those two demands are in conflict. But there’s no question that there’s a much broader consciousness now, and people are paying much more attention to these corporate social responsibility issues than they did a couple of decades ago.

How are some investors putting pressure on companies to do good?

There are some indications—they’re still rather small green shoots, but at least they’re green shoots—to indicate that more and more stakeholders are demanding that companies do good as well as doing well. Some of the big activist investors are focused on short-term changes in the stock price, yet others—the big example is Mr. Fink, who runs the biggest capital fund in the world—are saying to them, “Hey, you have to think not just about profits but also about what kind of role you play in the world if you expect us to keep investing in your company.” So companies are dealing with these tensions between big-time investors who say, “What we really care about is what happens to the stock price in the near future, because we want an exit strategy.”—and others who say, “Yes, you’ve got to make money, but you also have to be responsive to these other demands as well.”

How has the bar for companies to be “good“ been lowered or raised over the past 30 years? To what can we attribute these shifts?

There was this earlier period of what is sometimes called “the good corporation,” which arose from the high profits or economic rents that came from relatively low competition both at home and abroad. Then that was less true, and companies became less “good” in that sense. Now, again in an era of high profits, we’re starting to see increasing publicity and pressure for corporate social responsibility behavior. You have an arc from a period when companies paid more attention to all their stakeholders because they could afford to, through a period where that was no longer true, to a period where once again profits are high—where companies are beginning to get increased demands from some investors and other stakeholders.

What implicit responsibility does a business have to prioritize sustainability initiatives and to focus on doing good?

The truth is that the first job of any entity is to survive, that is not to go broke. Then, beyond that, they have to pay attention to these other socially oriented goals, which includes how they make money and what kinds of impacts they have on stakeholders other than investors, including their workers and their communities. That’s reality. To read Professor Marina v. N. Whitman’s article on The Conversation, click here.