IBM vs. Silicon Valley: Corporate Social Responsibility in the Age of Gordon Gekko

I. Is Corporate Social Responsibility Compatible with Profitability?

            Corporate social responsibility has become a major issue in recent times. With the triumph of Chicago school economics and the fall of communism, making a profit has become the driving purpose of American society, whether its corporations themselves slashing costs to get in the black or admonishments that government should be “run like a business” from more fiscally-oriented politicians. Gordon Gekko, in the movie Wall Street, said it best: “Greed is good.” That three-line motto may as well be printed, framed and hung in the office of every CEO and corporate manager in America.

The strive for profit above all else has been facilitated by the government relaxing traditional laws meant to protect workers from predation by their employees: “free trade” pacts that make outsourcing that much easier, illegal alien amnesties that are driven by businesses looking for low-paid immigrant labor, and minimum wages that remain stagnant with only the occasional token increase. Unions, once the backbone of fair labor standards and rights in the U.S., have been drastically weakened with the decline of manufacturing in favor of white-collar work (where unions are looked down upon) and the increasing popularity of “right-to-work” laws that give scabs free license to undermine collective bargaining action. Couple all this with the rising unemployment brought on by the current recession as well as the new phenomenon of “underemployment” (college graduates being employed in positions they are massively overqualified for) and a pretty ugly picture emerges. Is corporate social responsibility dead?

            Thankfully, no. Even in the unrestrained capitalistic era we live in, where the bottom line is all that matters to most corporations, there are a number of companies that put principles above profit. Flying in the face of the post-Cold War consensus that treating employees with respect and paying them fairly is a path to bankruptcy and failure, companies such as IBM and Whole Foods continue to survive and thrive while adhering to a set of carefully thought-out principles (Hollender, 2004).

The real question becomes this: is it possible for all (or even a bare majority) corporations and businesses to adopt similar practices? Is the success of IBM, Whole Foods and the like merely a fluke, or can their businesses models scale to help provide more Americans with a greater standard of living? Additionally, is it possible that the profit-first mentality of corporations like Walmart that are known for abusing their employees and cutting corners at every step are actually hurting the American economy?

An analysis of this type would be invaluable to the American business community: if it could be conclusively proven that profitability and corporate social responsibility are not incompatible–indeed, the latter can work to enhance the former–it could lead to a sea change in the way American businesses operate. Employees would win in the form of increased pay, more benefits and greater satisfaction with their jobs, while employers would reap the rewards of high profitability and more motivated workers. “Greed is good”? Not anymore.

II. IBM vs. Silicon Valley: People Before Profits

            As mentioned already, IBM is the ideal test case in showing that profitability and corporate social responsibility are not mutually exclusive. IBM has won accolades from the tech and business communities for its unique focus on ensuring employee satisfaction and happiness (Hollender, 2004). While Silicon Valley is one of the most dynamic and fastest growing sectors of the American economy, one aspect that it continues to lag behind in is workers’ rights.

Programmers, video game developers and other tech professionals, in spite of their relatively high wages, are often forced to work 80 hours a week or more working on various projects, sacrificing free time, sleep and social lives in the process. This “crunch time” is notoriously dreaded in the tech industry: when a deadline for a software or game release approaches, employees are often expected to work around the clock programming and bug testing, many times sleeping at their desks. Additionally, despite the fact that the median tech employee’s wage is higher than the average American’s wage, this advantage is obscured by the constantly rising cost of living in the San Francisco Bay Area, Seattle and other regions where the tech industry dominates.

A programmer may make six figures a year, but he or she usually lives in a tiny apartment with roommates that costs thousands of dollars a month in rent and utilities, and is very likely to not own a car, instead commuting to work on public transportation or using shuttles that are “graciously” provided by the company they work for. It’s no surprise that tech companies such as Google, Amazon and Microsoft consistently report extremely low levels of job satisfaction, and why there historically has been a high rate of employee turnover at these and other tech companies (Eddy, 2011). Tech employees may seem to have it made on paper, but their six-figure salaries obscure the long hours and grueling, sweatshop-like conditions they must work under. The prestige of being an Amazon employee doesn’t last when you realize it entails having the work schedule of a Chinese factory worker.

            IBM’s commitment to employee satisfaction is already a rarity in American business in general; when contrasted with the unpleasant conditions that most tech companies force their employees to labor under, it’s even more astounding. IBM employees consistently report high levels of satisfaction with their jobs, with the company as a whole having some of the highest averaged employee satisfaction rates in the tech industry (Kanter, 2011).

Indeed, many veteran programmers and other tech workers, used to the low level of respect afforded to them at rival tech firms, often express gratitude and amazement that IBM goes out of its way to make sure that they are not overworked or underappreciated (Kanter, 2011). This is borne out by statistics; studies have shown that IBM has a far lower turnover rate than other tech companies, as many employees elect to stay with the company for as long as possible (Eddy, 2011).

IBM employees tend to stay with the company for an average of eight years, which is six years longer than the average tenure at Apple, Microsoft, Intel and other leading tech companies (Eddy, 2011). Furthermore, IBM affords a greater deal of respect and seniority to older employees, which again is no small deal considering the focus on youth in the tech industry and the rate at which tech skills become outmoded due to technology advances. IBM employees have an average age of 44, which is eight years higher than the industry mean of 36 (Eddy, 2011). IBM employees also report a lower mean stress level than other tech companies; in contrast, Facebook employees are some of the most stressed (Eddy, 2011). Finally, IBM’s commitment to respecting its employees goes beyond America’s borders. Most tech companies, when freed from the few labor restrictions that the U.S. government forces on them, go bananas in treating their overseas employees with zero respect.

IBM treats its employees at non-American branches with the same level of dignity and respect that it does with its American employees, which has lead to foreign IBM managers consistently expressing their gratitude and amazement at the integrity of their company (Kanter, 2011). No other tech company based in the U.S. consistently commands this level of respect from their employees. Even more astounding, IBM has one of the most esteemed pedigrees in Silicon Valley, having been in business for over a century in some form or another. Again, considering the high rate of failure that Silicon Valley startups have, the fact that IBM has managed to maintain its current level of employee satisfaction for so long is amazing.

            Additionally, IBM’s sense of corporate responsibility extends beyond merely paying its employees respectable wages and making sure they are not overworked. Once again, Silicon Valley has a reputation for being miserly with its earnings and refusing to acknowledge that it has a greater responsibility to America and the world. With some exceptions, such as Bill and Melinda Gates’ work, tech companies contribute a relatively low percentage of their earnings to charitable causes.

Indeed, when tech CEOs do attempt to help out the underprivileged, it usually becomes front page news due to its relative rarity, and the ulterior motives of the CEOs in making these donations is never acknowledged. For example, Facebook CEO Mark Zuckerberg’s donation of millions of dollars to Newark public schools was much lauded when it happened, but few discussed the reality that Zuckerberg’s philanthropism was likely an attempt to defray the negative press he got due to the movie The Social Network being released to theaters at roughly the same time (Severns, 2013).

Not only that, feminists and other minority activist groups have often pointed how hostile the tech industry is to women and non-whites. Despite all the social progress made in other sectors of American society, Silicon Valley is still primarily staffed and run by white men. Attempts to encourage more female and minority programmers have been, at best, ignored by major tech companies. At worst, female and minority tech workers have been met with harassment and violent threats. For example, last year, SendGrid employee Adria Richards was targeted by the “hacktivist” collective Anonymous after she had the temerity to report sexual harassment at an industry convention (Harris-Perry, 2013).

After Anonymous besieged her and SendGrid with direct denial of service (DDoS) attacks and death threats, SendGrid fired her in an attempt to defuse the public relations firestorm that had been kicked up by her report (Harris-Perry, 2013). It’s unknown how many women and minorities, witnessing the virtual burning at the stake that Richards received, were dissuaded from pursuing a career in tech. Incidents such as “Donglegate” (the colloquial term for the Adria Richards controversy) remind everyone how hostile the tech industry is to women and people of color who dare speak their minds and refuse to be disrespected.

            In this respect, IBM has once again bucked the Silicon Valley/American trend of putting profits before people. For several years now, IBM has funded programs to improve education in the third world, ensuring that a greater percentage of people are able to rise out of poverty and enjoy the first-world standard of living that Americans are so accustomed to (Hollender, 2004). Additionally, IBM is a fervent proponent of women’s rights, funding programs that advance feminist reforms in the developing world as well as running scholarships and other programs designed to encourage women to major in computer science and pursue careers in tech (Hollender, 2004). Again, considering the tech industry’s relative hostility to non-white, non-male programmers, it’s remarkable that IBM has been promoting these causes for longer than many top companies such as Facebook have even existed. Not only that, IBM has been a leader in expanding the reach of technology to the underprivileged and poverty-stricken regions of the world, funding programs that enable the poor and otherwise downtrodden to access the Internet, computers and utilize them to improve their economic situations (Hollender, 2004).

Finally, IBM has a long-standing policy of refusing to engage in transactions it deems exploitative (Kanter, 2011). All of these programs have given IBM an extremely coveted reputation abroad: used to being exploited by American tech firms who only care about making more money, foreign tech workers continue to be impressed and amazed by IBM’s commitment to social uplift and progressive ideologies (Kanter, 2011). This reputation has made it easier for IBM to attract skilled employees both at home and abroad and has made its expansion into new markets much less of a headache, which has had a consistently positive effect on its profit margins. IBM’s continued longevity in the famously volatile tech industry is a testament to the strength of its social responsibility-centric business model.

III. How Social Responsibility Affects Profitability

            How has placing people before profits helped or hurt IBM? While there is a relative paucity of data on how corporate social responsibility affects a company’s profits, there is enough information to suggest that social responsibility is not the kiss of death that more cynical CEOs believe it is. To make this point, we can compare the profit margins of socially conscious companies with those that are not and find that there is no appreciate difference between them.

            For example, let us compare Walmart with Whole Foods. The two chains are nationally popular retailers with decidedly different business models. While Whole Foods strives to be a leader in community and social engagement, Walmart is known for only caring about its bottom line and cutting corners at every opportunity (Servaes & Tamayo, 2013). For example, Walmart pays its workers so poorly that a Walmart in Canton, Ohio was forced to have a Thanksgiving canned food drive for its own employees in 2013 (Neuman, 2013).

Data consistently shows that while Walmart has a greater profit than Whole Foods in raw numbers, when the scale of both corporations is taken into account, the two have roughly the same profit margin (Hollender, 2004). When adjusted for the fact that Whole Foods is smaller than Walmart, the latter’s cost-cutting and abuse of its employees doesn’t produce an appreciable boost in its profits (Hollender, 2004). While this isn’t evidence on its own that corporate social responsibility can scale to encompass a majority of American businesses, it does suggest that the Gordon Gekko “greed is good” mentality is not nearly as advantageous as its proponents claim. At the very least, it shows that a corporation can treat its employees with respect and be active as a force for good in local communities without its balance sheets suffering.

            IBM, the primary focus of this paper, provides further evidence in favor of corporate social responsibility as a tool to enhance profitability (or, at the very least, a worthy goal that will not hurt profitability). Some background: Silicon Valley and the tech industry in general is known for its volatility. Startup businesses are constantly being founded and going bankrupt, sales and buyouts are common, and the dominant companies in Silicon Valley are primarily products of their era. For example, ten years ago, MySpace was the leading company in the still-nascent field of social networking; today, Facebook and Twitter lead the pack as MySpace has been forgotten.

Facebook was the undisputed colossus of social networking four years ago; today, it has started to see its market share erode due to a botched IPO, constant and poorly-thought out interface changes, and the rise of savvier competitors such as Twitter. In the late nineties, there were countless PC manufacturers including Acer, Compaq, Gateway and Dell: today, many of these brands have either gone bankrupt or been acquired by wealthier competitors.

Additionally, a great many Silicon Valley startups have had difficulty even turning a profit to begin with, subsisting either on the goodwill of investors or being subsidized by wealthier corporations. For example, nearly a decade after its acquisition of YouTube, Google is still struggling to find a way to make the site profitable (Worstall, 2013). Given the thin fiscal lines that many tech firms must walk, it’s not surprising that they took to the “greed is good” model of selfishness and profit-centrism.

            IBM stands apart from most tech firms due to its long record of not only existence, but profitability. As mentioned in a previous section, IBM has been in existence for over one hundred years and has been involved in computing and technology design since the 1980’s. Among tech companies, IBM has one of the longest records of unbroken profitability (Kanter, 2011). In an industry where companies are constantly being founded, going bankrupt and being acquired, IBM has managed to remain independent and profitable longer than the vast majority of its competitors (Kanter, 2011). This is despite its commitment to corporate social responsibility, a distinction that sets it apart from the profit-centric tech industry.

IV. Conclusion

            It would be foolhardy to argue that adopting policies of social responsibility would make unprofitable or low-profit firms wealthier. Indeed, it would be the definition of cargo cult thinking to chalk IBM’s consistent success up to its policies of promoting progressivism and technology access in the third world and treating its employees with dignity and respect. There are obviously many factors that determine a corporation’s profitability: the types of products it sells, how much it charges for them, what its operating expenses are, and so on.

            It would also be a mistake to assume that IBM’s business model would be able to scale to incorporate the majority of American corporations. Even with the data that this paper was based on, there still is insufficient information on the relationship between corporate social responsibility and profitability. It is extremely unlikely that corporations that build their business models on being as cheap as possible, such as the aforementioned Walmart, would be able to adopt an IBM-style philosophy without either going out of business or having to undergo major internal structure changes.

            What is clear is that the predominant philosophy of American business is not true. The post-Cold War consensus of profitability above all else, with the rights and happiness of employees either shunted to the side or actively attacked, is a false one. As the example of IBM shows, a corporation can be socially responsible and profitable at the same time. Indeed, as the example of Walmart shows, cost-cutting measures such as paying employees the bare minimum required by law, depriving them of health insurance and other basic rights, and working them to the point of exhaustion doesn’t provide any appreciable gains, or at least they don’t provide the kinds of gains that Walmart’s supporters claim they do.

            What does this mean for the future of American business? It’s hard to say. Cherished and deeply-held beliefs typically take a long time to dislodge from the collective consciousness. The New Deal belief that corporations exist to serve the needs of their customers and employees persisted in American business for half a decade.

It’s possible that the post-Cold War, Gordon Gekko philosophy of profit above all else will last as long. What is clear is that for the past two decades, American corporations have operated on a philosophy that is not only harmful to their employees, customers and the greater society in which they operate, it is harmful to the corporation itself. It’s unclear how to communicate this belief to the business community at large without being shouted down by the real-life Gordon Gekkos of America, who dominate both corporations and the government responsible for regulating them. All we can hope to do is to continue researching this topic, continue advocating for greater corporate social responsibility, and hope that forward-thinking, progressive business leaders will listen.

References

Eddy, N. (2011, June 7). Google employees best paid, Facebook employees most satisfied: report. eWeek.

Harris-Perry, Melissa. (2013, March 30). Sexism in the tech world rears its head at Adria Richards. MSNBC.

Hollender, J. (2004). What matters most: corporate values and social responsibility. California Management Review, Vol. 46, Issue 4.

Neuman, S. (2013, November 13). Ohio Walmart runs Thanksgiving food drive for employees. NPR.

Kanter, R. (2011). IBM values and corporate citizenship. Harvard Business Review.

Servaes, H. and Tamayo, A. (2013, May). The impact of corporate social responsibility on firm value: the role of customer awareness. Management Science, Vol. 59, No. 5., pp. 1045-1061.

Severns, M. (2013, March 28). Whatever happened to the $100 million Mark Zuckerberg gave to Newark schools? Mother Jones.

Worstall, T. (2013, December 12). Google’s YouTube ad reviews may hit $5.6 billion in 2013. Forbes.

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