All societies have problems. I am sure this is not a shock to anyone. Neighbors have disputes, poverty exists and inequality grows. Simply put, if each individual of a society is imperfect, so too is society, and since no one is perfect, we each play a part in making society imperfect. And like people, institutions (including businesses, governments, churches and civic organizations) also create good and bad for society.
The conundrum we face is that many institutions seem to be doing as much as they can. The question I want to pose is this. How can institutions, especially businesses, more effectively help improve society?
A typical Milton Friedmanesque response would be that businesses create jobs, pay whatever taxes are due and make societal contributions through the wealth created by shareholders. This all makes sense when a broad swath of employees are owners. But in all societies today, employees own less than 3 percent of firms. Businesses are owned, for the most part, by a few owners. And excuse me for saying so, many owners have not done enough to give back to society.
So until we reach a point where wealth is being created for more employees through employee ownership, one of two things is going to have to happen. Businesses are going to have to do more for societies, or the wealthiest of owners are going to have to give back at a higher and more meaningful rate.
Employees seem to grasp this. Motivational research suggests that employees are more motivated when they belong to a company that is doing social good. Here are a few examples of some businesses that are finding a way to help.
Social impact bonds or pay for performance bonds: In August 2013, Salt Lake City and the United Way launched a first-of-its-kind program. The plan was simple, Goldman Sachs and J.B. Pritzker invested $7 million in capital for an early education program. If the program was successful, the two investors would be paid back, with interest, using taxpayer money. Of the 595 high-risk, early grade students targeted, 110 pre-tested as “likely needing special education.” When the program ended, only one student needed special education. The program saved Salt Lake $281,550 in its first year alone, and longitudinal studies seem to indicate lasting results.
Internship programs for high-risk students: For the past few years, businesses have been making a significant impact in the lives of Chicago teens by offering minimum wage, part-time jobs for high-risk teens. Businesses hire these students for basic tasks such as data entry or providing customer service while a third-party organization (often a school or charity) handles the interviews, training and onboarding. Companies including Ford, J.P. Morgan and Exelon have all participated, along with numerous small and medium-size local businesses. School graduation rates among those who participate in the internships have increased by 20 percent, and a recent study suggests the societal benefits from increase earnings, tax payments and lower use of public services is about $119,000 per participant. Additionally, violent crime rates in these neighborhoods have reduced by 43 percent over a 16-month period. This is significant given that other Chicago neighborhoods are seeing the highest violent crime rates in decades.
In these examples, businesses have found creative ways to help address social issues. While these are only two examples, there are limitless ways that companies can begin now to make an impact. The lesson learned should be that with slow change to how company ownership is arranged, the responsibility falls on all business owners and employees to find solutions for improving society.
John Hoffmire manages the Impact Bond Fund at Said Business School at the University of Oxford.