Not a “One-for-One” Way Street: TOMS Paper 2


Take a moment to imagine the feeling of walking without shoes. Everyone has done it at some point or another. The sharp little pieces of gravel that cut through the skin, the burn of the hot, black pavement on a sunny day. It doesn’t conjure up pleasant imagery, to say the least. Now imagine an Argentinian child who endures this level of discomfort every day on his or her trek to school. Even more painful to imagine. In the wake of the millennial generation comes the quest for corporations to pair simplicity and tangibility of societal impact with profitability. From this quest emerged the now widely adopted one-for-one business model; its modernizer the well-known shoe company TOMS. The initial idea stemmed current CEO Blake Mycoskie’s trip to Argentina, where he witnessed the hardships children faced growing up without shoes. Humbled by the experience, Mycoskie sought to create a for-profit business that would be sustainable and un-reliant on donations. His solution? Simple yet revolutionary. The company’s coined one-for-one model functions exactly as it sounds—for every shoe a customer purchases, a shoe is given to a child in need. A company with the initial goal of providing Argentinian children with shoes grew into a company that cherished the greater gift of giving. Expanding its mission beyond shoes, TOMS now works to make eye treatment, safe water and skilled birth attendants accessible to recipients in over 70 countries around the world. While this simplistic and seemingly-pristine business model may seem immaculate on the surface, TOMS has taken a lot of heat from economists in regards to the real societal impact of its one-for-one structure. In order to analyze both the positive and negative ethical implications surrounding the buy-one-give-one mentality, the company TOMS will be broken down from a consequentialist/ utilitarian perspective.

In a capitalistic world focused on the maximization of shareholder values, what makes a company such as TOMS tick? Is philanthropic capitalism possible? Based on Mycoskie’s charitable business model, it sure is.  The company has given away more than 35 million pairs of shoes and has grown into a corporation worth 625 million dollars, demonstrating that it is in fact possible to operate as a successful business and have a social purpose (TOMS Website). TOMS initial aspirations for its buy-one-give-one business model was, for every pair of shoe purchased, the company would donate a pair of new shoes to a child in need. Walking is the primary mode of transportation for children in these poverty-stricken areas, and those who lack shoes are subject to cuts, injury, infection, and soil-based diseases. By supplying adequate footwear, Mycoskie’s hoped his business would increase the health and well-being of these children, providing them the protection they need to reach essential services such as safe water, education, and medical assistance. Six months into the business, Mycoskie was asked to be featured in Vogue and gained the appraisal of high profile celebrities such as Miranda Kerr and Kiera Knightly. As the company grew in revenue, TOMS entered into the unchartered realm of eyewear and handbags following the same one-for-one business model.  Like shoes, one pair of TOMS eyewear equates to one pair of prescription glasses, sight-saving surgery, or medical treatment and one handbag equates to access to a skilled birthing attendant.

The key to this for-profit’s success links back to newfound emphasis being placed on sustainability and corporate social responsibility. Consumers want to know where their money is going when they purchase a product. Counterintuitively, the company’s small size actually works in its favor—unlike large corporations, whether it be one that produces shoes or not, TOMS avoids the costs associated with gigantic overhead and complex supply chain management. Almost too good to be true, this for-profit structure differs from most charitable organizations in that it is sustainable. Or, at least that is what its proponents argue. In addition to being a successfully operating company, TOMS strategically capitalizes on the intangible benefits associated with its business model. The company doesn’t just sell its shoes to customers—it fosters an environment for which its consumers can tell a story. TOMS’ shoes allow its purchasers to not only express their individualism, but also provoke conversations between customers regarding their own buy-one-give-one experience. By coordinating shoe drops, recruiting volunteers and posting pictures on their website, TOMS helps so that shoe purchasers can see the direct impact they have on the give-back mission. In addition, working for a company that is dedicated to creating value will increase employee morale and happiness, and in turn will reduce employee turnovers and the costs associated with it while simultaneously increasing productivity within the workplace. According to retention statistics, “customer retention rates are 18% higher on average when employees are highly engaged.” (Carter 2016)

When it comes to whether or not TOMS’ shoes have a true, long-lasting societal impact on these countries, economists would beg to differ. This one-for-one business model has been questioned by economists regarding its operative feasibility and longevity, and the true long-run effect its structure has on these communities has raised concerns. In order to assess the viability of the one-for-one business model and the ethical consequences of TOMS, one may assess the company through the lenses of a utilitarian ethicist. Utilitarianism falls under the consequentialist theory and states that ethical decisions should be made in order to maximize the overall well being of society and minimize harms. Under consequentialism, no action is inherently wrong, it depends on the result of that action. Take into account the following scenario—suppose by killing X individual, one has the ability to save the lives of fifteen other innocent individuals. Utilitarianists would argue that it would be ethically justifiable to kill person X, in that the overall net benefit would be saving fifteen lives as opposed to one.

Taking into account the moral perspective of consequentialism, how would one assess the ethical implications of TOMS shoes business model? Both economists and utilitarian ethicists would agree on the grounds that, while the moral intent behind the buy-one-give-one action is there, TOMS could make even better decisions when it comes to maximizing the wellbeing of the communities they attend to. Economically speaking, shipping shoes, eyewear, and handbags free of charge to impoverished nations has the potential to hinder development and create long-term dependency. While it is TOMS’ mission to combat the societal issue of poverty by giving children the tools they need to access education, safe water, and medical assistance, this one-for-one model can end up replacing local markets and incite depression in native apparel industries. By promoting an aid-based economy, in reality, TOMS may be working against the exact problem it wishes to solve.

Evaluating the consequences of TOMS’ actions brings to the surface two existential flaws of the business model. The first flaw is that the gift of free shoes doesn’t address the underlying issue of poverty, it only alleviates the symptoms of the problem—the symptom being lack of shoes. Donating a free pair of shoes surely has the capacity to provide a child with short-term benefit. However, in order to maximize the wellbeing of society at large within a “system in need of long-term, multifaceted economic development, health, sanitations, and education solutions”, more than just a quick-fix is needed. From the perspective of a non-consequentialist school of ethics, one may argue, “well, at least TOMS is doing something!” This is where utilitarianism would step in and say that positive and negative consequences take into account not only the action itself but everything that the action causes. Therefore, problems arise when that so-called “something” has the potential to do more harm than good.

In response to Jason Sadler’s “I Wear Your Shirt” advertising company, a recent Times article addressed that “flooding the market with free goods could bankrupt the people who already sell them” and many African textile industries crumbled during the 1970’s and 80’s under the weight of secondhand clothing imports (Wadhams 2010). Instead of working to solve the problem of poverty, this creates more of a dependency on already developed nations and could further weaken the economy of underdeveloped nations. Think about it; if people are being offered free things, assuming these individuals act rationally, why would anyone buy from local stores? And if consequentialism holds true, then “actions are transient things, soon gone forever.” (Haines 2014) In other words, actions themselves are fleeting but their implications are not, therefore the primary focus of an action should be placed on its results. Tying this example to the idea that led to the establishment of Grameen Bank, poor individuals aren’t poor because they lack money or “stuff”; they are poor because they lack the proper infrastructure to create wealth. Thus, poses the dilemma for weary consequentialists who would question whether TOMS is structured to build or destroy the economies of developing nations.

This carries over into a second, more internal consequential flaw—the longevity and sustainability of the company itself. Easily replicable, as more companies adopt the simplistic one-for-one business model, it will become increasingly difficult for consumers to differentiate between these for-profit companies. There is already a variety of buy-one-give-one businesses infiltrating the market—“NouriBar donates a meal for a hungry child for every nutritional bar it sells; KNO Clothing gives away clothes and donates to homeless shelters; Soapbox Soaps donates a month of water, a bar of soap, or a year of vitamins for each soap product it sells, and so on” (UPenn 2016). With companies replicating the exact same “feel good” return, it could very well be that TOMS’ business structure is not sustainable in the long run. When weighing the consequences of decisions, an important component of utilitarian ethics is “identifying alternative actions and their consequences for all stakeholders” (Trevino & Nelson 2004). Therefore, a consequentialist would say that the perceived charitable attributes of the product are merely masking the potential flaws of TOMS’ unsustainable business model and that the company did not initially take into account better alternative actions for their stakeholders when constructing such model.

After stripping away the layers of the seemingly-flawless business model and digging past the surface-level idea that TOMS is the ideal model of corporate social responsibility, the subsequent step is to compare the costs and the benefits. As mentioned previously, the benefits of the one-for-one business model include direct and immediate aid for children in need, increased profit margins as a result of minimal overhead costs, a strong marketing campaign and high employee morale. This must be held in comparison to the costs of lack of longevity and sustainability as a function of market flooding that could result in reduced profitability in the long-run,  cuts in profits for local shoe makers and other entrepreneurs in impoverished communities, and increased dependency on already developed nations in the long-run as a result of a weakened economy.  When evaluating a company using consequentialism, it is important to acknowledge that “rationality and objectivity are impartial; they do not favor one person over another” (Haines 2014). Therefore, in the case of TOMS, it is important to consider and make decisions based on how potential consequences will impact communities at large rather than evaluate how they will affect the company itself. After evaluating all the positive and negative consequences regarding the one-to-one business model, it is clear that TOMS still has room to improve its decision making in regards to its sustainability, its mission, and its impact on the world.

In response to recent lash back from economists and journalists, TOMS has worked to broaden its impact and minimize negative spillovers in a way that would make a utilitarianist smile in pure bliss. TOMS proactively recognized the disconnect between the company’s social mission it was founded upon—to aid communities suffering from poverty—and their focus on profitability and drive to sell shoes. While both ends of the spectrum are equally important, TOMS realized it was necessary to strike a balance between the two in a way that worked in tandem with one another. The proactive nature of the company is exemplified through the expansion of product lines and charitable efforts. TOMS now uses its platform as a well-known shoe company by partnering with Giving Partners, an organization that is an expert in water sanitization and hygiene, “to help create sustainable water systems in seven countries” (toms.com). Embedded within the web page, a section is dedication to explaining how the company goes beyond the one-for-one business model by working to manufacture and source to create jobs in the countries they give, establishing research to identify more needs for future products, and investing money in teams to support the eradication of diseases.

In order to eradicate the consequence of stunting economic growth in these nations and destroying local businesses, TOMS has made a new mission to produce one-third of the shoes it produces in the countries to which donates to. Shoe manufacturing today has made its way to Kenya, Argentina, China and Ethiopia (Figure 3, Appendix). Now, not only do they sell a shoe for profit and donate a portion of that profit to a shoe for a child in need, but they also seek local organizations that have a long-term commitment to these under developed regions where they work and partner with them to make a difference. Blake Mycoskie states that “TOMS welcomes the opportunity to join forces with incredible organizations around the world, whose integrated approaches across health, education, and other service sectors allows us to provide a valuable link through TOMS giving.” (toms.com)  A story was posted in 2014 regarding TOMS’ partnership with Visualiza Eye Care Center located in Guatemala City, known for providing high-quality eye care to people in need. Initially, their fees were subsidized by Visualiza’s private sector. With the help of TOMS Sight giving, a doctor and his team were able to reach deeper into local areas to find those who were either unaware of the resource or could not afford it (Figure 2, Appendix). In addition, “the company’s ‘Do No Harm’ principle explains the attention that is put into ensuring that local shoemakers are not negatively affected by shoe giving in the area and that shoes are designed not to create a negative social stigma.” (Lyons 2013)

Not only has TOMS worked to maximize the benefits of society as a whole and minimize harm by moving production and working with local organizations, but they have also added a section called The MarketPlace to their website to help other social entrepreneurs to develop their businesses and keep the trend going. Instead of fearing this would increase competition and focusing on the potential profitability of their individual company, they complied with utilitarian ethics through impartially and put overall societal well being over their own selfish agendas. This hub allows other social entrepreneurs, dedicated to sustainability and creating value, to promote their businesses and causes they support on the TOMS website. At the bottom of the page, there is even a quote that reads, “This is bigger than us” (Figure 1, Appendix) and links directly back to the optimization of net societal gain that is addressed at the heart consequentialism. Their willingness to shift the attention away from their company and spotlight others on their own advertisement channel shows their goal to eradicate pushing individual agendas and focus instead on the net benefit to society as a single entity.

Therefore, when evaluating TOMS and its success on maximizing value as a firm, after seeing the proactive measures taken and their receptiveness to change, a consequentialist would give the company a solid A rating. One-for-one business models can be successful through the lens of utilitarianism when time and thought is put into decision making. The key is to address first what issues, locals, and outcomes resonate with the company and then make a conscious effort to determine what strategies, contributions, or gifts can these for-profit companies use to maximize benefits (Figure 4, Appendix). In other words, maximize benefits for the overall well being of society as a whole, not just optimizing benefits for one singular entity.

 

References

C., W. “Putting the Boot in Development.” Free Exchange Economics. The Economist, 17 Oct. 2014. Web. 14 Apr. 2016.

Davenport, Cheryl. “The Broken “Buy-One, Give-One” Model: 3 Ways To Save Toms Shoes.” Co.Exist. N.p., 10 Apr. 2012. Web. 14 Apr. 2016.

Haines, William. “Consequentialism.” Internet Encyclopedia of Philosophy. N.p.: n.p., n.d. 1-17. Print.

Lyons, Thomas S. Social Entrepreneurship: How Businesses Can Transform Society. Santa Barbara, CA: Praeger, 2013. Print.

“The One-for-one Business Model: Avoiding Unintended Consequences.” The One-for-one Business Model: Avoiding Unintended Consequences. Wharton University of Pennsylvania, 16 Feb. 2015. Web. 14 Apr. 2016.

TOMS company website. (2013). , 2013, from www.toms.com

Trevino, L. K., & Nelson, C. A. (2004). Deciding what’s right: A prescriptive approach. Managing business ethics (3rd ed., pp. 88) John Wiley & Sons.

Wadhams, Nick. “Bad Charity? (All I Got Was This Lousy T-Shirt!).” TIMES, 12 May 2010. Web. 14 Apr. 2016.

Zimmerman, Mike. “The Business of Giving: TOMS Shoes.” SUCCESS. N.p., 29 Sept. 2009. Web. 14 Apr. 2016.

APPENDIX:

Figure 1 (Source: TOMS.com)

THE TOMS MARKETPLACE LAUNCHES AT TOMS.COM. One for One(R) Company Curates, Sells and Promotes Over 200 Products from 30 Different Companies That Incorporate Giving Into Their Business Models. (PRNewsFoto/TOMS) ** Usable by LA and DC Only **
Figure 2 (Source: TOMS.com)

TOMS 2

Figure 3 (Source: TOMS.com)

toms-map
Figure 4 (Source: http://ww2.capsim.com/)

utilitarian

Giving Reports:

Giving reports

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s