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Tuesday, October 20, 2015

Strategic CSR - TOMS Shoes

The article in the url below deconstructs TOMS Shoes' business model, suggesting it is a means for consumers to feel good, rather than to do good:
"Did you buy TOMS shoes because you want to make the world a better place? If so, you should be a little mad. TOMS, of course, is an accessory company that markets itself like a charity … When someone buys a pair of TOMS shoes in the US, for instance, the company donates a pair of shoes to a child in a poor country like Haiti. … But TOMS and the many other companies like it are the charitable equivalents of yes men. They're telling you what they think you want to hear in order to get what they want (for you to purchase trendy, pricey accessories), not what you need to hear in order to do what you want (to have your purchase to do as much good in the world as it can)."
The point of the article is that, while TOMS may well be well-intentioned, it is not an efficient way to help those most in need:
"TOMS tells you that you that making the world a better place is all about you: that you know best how to help poor people, and that you are so powerful that it will take barely any effort on your part to make a huge difference in the world. … But the truth is that while that kind of messaging is evidently a great way to sell trendy shoes, or to otherwise raise money, it's not a very good way to do charity. At best, it's inefficient: It focuses on programs that waste your hard-earned cash by failing to do the most good per dollar. At worst, it promotes a view of the world's poor as helpless, ineffective people passively waiting for trinkets from shoe-buying Americans. While the shoes themselves probably won't lead to any kind of disaster, that worldview can lead to bad policies and real, serious harm."
The author argues that there is a series of assumptions that underpin the business models of firms like TOMS that do not necessarily make sense. For example, TOMS founder, Blake Mycoskie (see Strategic CSR – Toms Shoes) goes to a poor country and sees that the children there do not have shoes. As such, he decides to set-up a company that will provide them with shoes. The assumption is that they need shoes and that, if they have them, their lives will be better than they were without shoes. The author of the article says this is not necessarily so. Instead, she suggests that giving money is a lot more effective way to help those in need. Why should Mycoskie know what is best for these people when, if you give them money, they can decide for themselves? The author notes that there are even examples of TOMS shoes finding their way onto the black market in areas where they are distributed. In other words, rather than wear the shoes, people sell them to get money to help them buy what they really need to improve their lives:
"There's a different approach. Instead of giving shoes, why not give poor people cash? If shoes are really what the recipients need, then they can go ahead and buy them. But if not, their options are wide open: They can put the money toward medicine or a crop loan or school fees. Or they can use it to invest in some kind of income-generating venture, such as livestock or a small business."
For me, the article is valuable because it demonstrates the limits of what has come to be called 'social entrepreneurism.' There are two points that I want to make about social entrepreneurs:
1. I do not understand the difference between what people call a "social entrepreneur" and a regular entrepreneur. Usually, definitions of social entrepreneurs revolve around some desire to solve social problems using business solutions. Isn't that what all entrepreneurs do? If I set up a clothing business or a food store, I am trying to clothe people and feed people, respectively. Are those not social goals?
2. In fact, what people call social entrepreneurs today (e.g., TOMS Shoes) are really unsustainable business models that are propelled by consumers' philanthropy. In other words, TOMS Shoes survives because consumers are willing to pay a ridiculous amount of money for very cheap shoes and trust that TOMS Shoes will ensure someone who cannot afford a pair of shoes will receive one. Now, if purchasing shoes for the poor is the goal, I agree with the article's author that it would be more effective to donate the amount of money that TOMS is charging consumers to do this to a charity. TOMS Shoes may have become adept at establishing the supply chain necessary to donate shoes worldwide, but I am guessing there was a huge amount of inefficiency involved in setting it up and that TOMS was probably reinventing the wheel (i.e., that supply chain already existed through other means).
The combination of these two points brings me to the main point of today's newsletter – if any of my students approach me and ask how they can make a difference in the world, I tell them they should join a for-profit firm, rather than join a nonprofit or become a social entrepreneur. And I emphasize that the larger the firm they join, the more good they will likely be doing. For-profit firms exist to create value and are usually many times more efficient at doing so than "social entrepreneurs." As I have said a number of times in this newsletter, businesses are not perfect (which is why Strategic CSR exists), but it is these for-profit organizations, embedded within the structure of a market forces, that represent the future. If we want to build a sustainable economic model that does not transport us back to the nineteenth century (or before!), we need to work with what centuries of economic exchange and knowledge of human psychology have taught us about efficiency and progress.
For a similar analysis and more insight into the counter-productive effects of TOMS Shoes, see this short video:
Take care
David Chandler & Bill Werther
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Buying TOMS shoes is a terrible way to help poor people
By Amanda Taub
July 23, 2015
Vox Topics