TOMS Shoes: Doing More Harm than Good?

TOMS Shoes: Doing More Harm than Good?

 

A single idea can change the world. –Blake Mycoskie, Founder, TOMS Shoes

In 2006, American Blake Mycoskie traveled to Argentina and befriended children who could not afford shoes. These children not only were susceptible to foot sores and soil-transmitted diseases, but also could not attend school since shoes were “a required part of their uniform” (TOMS official website). Wanting to help, Mycoskie created TOMS Shoes, formerly known as “Shoes for a Better Tomorrow,” a 90 employee operation headquartered in southern California, which offers stylish cloth and canvas shoes (Hubbard and Pink). (See Exhibit 1 which portrays the wide variety of designs and styles that TOMS offers). TOMS’ business model, however, is unorthodox because for every pair of shoes it sells, it donates a pair of new shoes to a child in need, known as the “One for One” initiative (TOMS official website). The One-for-One initiative “transforms TOMS’ customers into benefactors,” which allows Mycoskie’s company to become “a truly sustainable business rather than [a charity dependent] on fundraising for support” (MSN). (See Exhibit 2 which provides greater detail on the One-for-One model in action). Mycoskie and his team travel the globe to distribute footwear to children in underprivileged areas (Hubbard).  As Mycoskie puts it: “every time a customer slips on a pair of Classics, Cordones, or Stitchouts, he gets a reminder of the contributions he’s made to the world” (Pink). (See Exhibit 3 for TOMS’ marketing campaign). In this paper, I will describe how TOMS’ successful, socially-driven business model disproves Milton Friedman’s doctrine of corporate social responsibility. Moreover, using Edward Freeman’s stakeholder theory, I will illustrate philanthropists’ criticisms towards TOMS’ famous One-for-One initiative.

TOMS’ HISTORY

The TOMS phenomenon hit the United States after a few Los Angeles boutiques agreed to sell Mycoskie’s shoes (Daniels 1). American customers became TOMS’ biggest market through word-of- mouth marketing. Only a few months after TOMS hit the market, Mycoskie was flying out of New York and casually asked a woman why she was wearing TOMS shoes. Not knowing who he was, the woman enthusiastically began to tell him about the “mission of the company, the founder’s background and that they weren’t just any ordinary shoes” (Flandez). Americans were attracted to the good intentions behind Mycoskie’s business (Schectman).

American corporations, including AT&T and Polo Ralph Lauren, also began collaborating with TOMS (Flandez). Ralph Lauren designed a special line of TOMS for his rugby brand to help the brand establish credibility while AT&T filmed a commercial about TOMS and followed Mycoskie on a shoe drop to help raise awareness about the company’s social mission (Keplesky). With the help of multiple corporations, customers, and social media, the company has grown exponentially. Not only did TOMS give away its 1,000,000^th pair of shoes in September 2010, but it also has expanded to helping kids in twenty countries around the world through its health and human organization partners (TOMS official website). TOMS relies on these Non-Governmental Organizations [NGOS] to coordinate shoe drop offs and help accommodate children who outgrow their first pair of shoes (MSN).

A DAY WITHOUT SHOES

To increase further awareness about the shoeless children in developing countries, TOMS founded “A Day without Shoes” in 2007. The purpose of the event was to get people talking: “the idea [was] to spread the word by asking those [people] why they were [not wearing shoes]” (Decker). (See Exhibit 4 to see the thank you video for 2012’s “A Day Without Shoes”). Mycoskie elaborated as to why TOMS was asking everyone around the world to participate in this event:

I think sometimes, we forget what we have, and occasionally it’s important to remind ourselves. Most people don’t even how many children in developing countries grow up barefoot and all the risks, infections and diseases they endure…I want everyone to personally understand the impact of shoes, and the difference they can make: Why don’t we get a taste of what these kids go through every day? (TOMS official website)

With the help of celebrities such as Kristen Bell, the Dallas Cowboys cheerleaders, and the Jonas Brothers, the event continuously enjoys tremendous turnout (Mycoskie). (See Exhibit 5 for TOMS’ 2011 “A Day Without Shoes” advertisement). Last year, over 250,000 people across twenty-five countries participated in the event and the turnout for 2012 is predicated to be even greater.

DOES TOMS’ BUSINESS MODEL MAKE IT LESS COMPETITIVE?

Milton Friedman would condemn TOMS’ business model because he believes that businesses’ sole purpose is to generate profits for its shareholders. Friedman claims that companies are less competitive when they incorporate social responsibility into their business plans (Friedman 121). He would cry foul over TOMS’ “Philanthropic Capitalism” because the company incorporates philanthropy into its business strategy, creating a cost rather than an opportunity for the firm (Daniels 2). Friedman would recommend charging the same price for each pair of shoes and then donating a “significant” amount of money to a NGO devoted to helping children in developing countries. In Friedman’s eyes, TOMS could then be considered socially responsible since the company would be pleasing its customers as well as its shareholders. In other words, companies do not need to go beyond “the amount that is in the best interests of the corporation or required law” to meet society’s “social” needs (Friedman 123).

DOING GOOD AND DOING WELL

Mycoskie’s entrepreneurship has disproved Friedman’s theory by successfully demonstrating that businesses can be both profitable and socially responsible (Brauer 90). While many consider the company as philanthropic, TOMS is a “for-profit company with giving at its core” (TOMS official website). TOMS’ social mission, however, is “integral to the competitive logic of the company” because its brand does not exist outside its “charity” work (Pink and WSJ). According to Lisbeth den Toom, senior editor of Springwise, an Amsterdam–based blog and newsletter that tracks new business ideas, “without the connection to a larger cause, I doubt the TOMS brand would have grown as quickly or had as much staying power” (Pink).

TOMS’ giving-based business, in turn, has proven to be a “powerful profit engine” (WSJ). (See Exhibits 6, 7, and 8 to view the company’s income statements and growth over the previous four years). While TOMS does not reveal its financial information, according to a 2009 CNBC show, it only costs TOMS $9 to produce each pair of shoes, while in turn, the price of shoes sold in stores ranges from $44 to over $100, depending on the model (CNBC). The price of the shoes “cover[s] the cost of the donated shoes and shoe drops,” allowing TOMS to continue its socially-driven mission (CBNC and Daniels 3). With its loyal customers supporting Mycoskie’s simple initiative, TOMS continues to maintain a profitable business, even in the current economic downturn.

PHILANTROPISTS’ CRITICISMS ABOUT TOMS’ BUSINESS MODEL

Most people would find it hard to understand why anyone would criticize TOMS      shoes, especially since the company has been able to provide more than 1,000,000 pairs of shoes to children in developing countries worldwide. Many philanthropists, however, have criticized TOMS because the company makes people in poor nations “dependent upon the good will of others” rather than creating opportunities for them to better themselves (Daniels 10). TOMS does have a brilliant marketing strategy because it “stirs up humanitarian concerns,” but [its] actions may even violate Thomas Donaldson’s first principle of “do no harm” (Values in Capitalism). Donaldson’s first principle states that multinational-national corporations [MNCs] need to fulfill their “mandatory duty” of not directly depriving citizens’ fundamental international rights, such as the right to subsistence or physical security (Donaldson 147, 149). TOMS, unfortunately, deprives citizens in developing countries the right to subsistence because having a price of zero, according to Apoorva Shah, changes “shoe economics regardless of how undeveloped the shoe market may be” (Values in Capitalism). Local merchants who sell basic quality shoes, therefore, can no longer compete with free, creating more unemployment in already extremely poor areas (Watkins). There is no incentive for dependencies to end because TOMS competes with local producers “by handing out free goods” and being the “Quintessential Whites in Shining Armor” (Watkins). By not providing any additional solutions, poverty will continue to “run rampant in the lives of children who just happen to now have new shoes” (MacDonald).

Critics also argue that TOMS business model, particularly its “A Day Without Shoes” event, reinforces the pre-existing stereotypes of the poor and incapable developing countries. Saundra Schimmelpfeniig, founder of Good Intentions are not Enough, has led several protests against the annual event, even hosting a counter campaign: “A Day Without Dignity” (Paulson). Other non-profits and charities, including Project Diaspora (PD), have expressed their frustration with TOMS’ “raising awareness campaign” because privileged citizens in the developed world are not talking with people in developing countries or becoming educated about their true needs (Project Diaspora). One PD blogger, Tukenia Obasi, notes: “the media has created enough awareness about poverty, starvation and war in the developing world. We really don’t need another awareness campaign, especially not another condescending remind-ourselves exercise” (Obasi). According to the “A Day Without Dignity” video, t-shirts and shoes are not at the top of developing countries’ priority lists. People want jobs that pay sustainable income and that will feed their families. (See Exhibit 9 to watch the complete “A Day Without Dignity” video). There has been no formal response to “A Day Without Dignity” from TOMS shoes, but Mycoskie should realize that his company has the capability to be a driving force for economic change. Unless we become truly educated about the crises that exist within the developing world, the vicious poverty cycle within those nations will continue.

STAKEHOLDER THEORY: WHO TAKES PRIORITY?

Over the last thirty years, the world has viewed corporations as “the property of their shareholders in public corporations and limited in their liability for their effects upon others” (Freeman 2010). In an interview conducted at the University of Virginia’s Darden Business School, Edward Freeman claims that his stakeholder theory has been attempting to change that mindset by providing a framework for managers to understand the business environment and “make sense of it” (Darden). He argues that in order for any business to be successful, it has to create value for “customers, suppliers, employees, communities, and financiers” and make sure that all stakeholders’ interests resonate together (Darden).

Freeman argues that philosophers and social scientists define “stakeholders” in two different ways. Philosophers believe that stakeholders are a way to bring accountability to business decisions, especially to those who can affect or be affected by the firm (Freeman 2000).  Social scientists, on the other hand, view stakeholders as “useful unit[s] of analysis that easily depict the social and societal effects of the business” (Freeman 2000). Stakeholders, in other words, force firms to consider the societal consequences of their business decisions, rather than just the economic ones. The key to businesses’ success, according to Freeman, is to not only have products and services that customers want, but also have good effects on the community or allow “customers to do things in the community that they couldn’t do otherwise” (Darden).

In the case of TOMS shoes, Mycoskie’s business views the shoe recipients in developing countries across the world as “units of analysis” rather than as moral agents. TOMS believes that its social mission creates benefits for all of its stakeholders: a profitable business, loyal customers, and happy children in developing countries. The firm, on the other hand, seems to not fully comprehend the unintended consequences of its shoe giving. TOMS needs to be held accountable for the jobs lost and increased dependence on foreign “kindness” as a result of its One-for-One initiative. Capitalism, according to Freeman, is how businesses create value for their stakeholders and that capitalism only works when “[we] desire to create value for each other, not our desire to compete” (Darden).  TOMS, unfortunately, has competed against local merchants and distributors, costing these individuals their jobs and sustainable income.

If TOMS Shoes were to appoint me as CEO, I would make significant changes in their company’s business model. First, TOMS first needs to establish relationships with community leaders in developing nations to understand their true needs. Teams who participate in the shoe drop offs could lead round-table discussions to determine future potential partnerships. TOMS has the economic, social and political resources to implement positive change, but what could they do? After reading Shah’s article, I have two proposals: TOMS should build local factories in these developing nations and employ local residents to make the shoes as well as incorporate local vendors into their supply chains (Values in Capitalism). Citizens within these countries not only would be receiving the shoes they need, but the company would also be creating additional employment and long-term relationships through foreign direct investment. Instead of donating shoes for the One-for-One initiative, the extra money could go to helping support the operating costs of TOMS factories. TOMS would still be raising awareness about poverty within these nations as well as helping these people become economically independent in the long-term.

THE FUTURE OF TOMS

Despite its critics, TOMS expanded its One-for-One initiative to eyeglasses in 2011. After the company’s shoe success, Mycoskie’s entrepreneurial mindset recognized that TOMS “could be more than a shoe company-it should be a One-for-One company” (TOMS official website). The company chose sight as its next chapter due to its fundamental need. After Mycoskie and a small team learned how blindness and vision-impairment conditions in developing countries were either preventable or curable, TOMS launched its eyewear line with the promise that for every pair of glasses sold, a child in need “would receive medical care, prescription glasses, or sight-saving surgery” (TOMS official website). By attempting to understand the fundamental eyesight problems within developing countries, the company’s latest initiative seems to be focused towards capacity building rather than merely giving away goods.

With the goal of giving sight to people all over the world, the company first started in Nepal, Cambodia and Tibet. Most recently, TOMS has expanded into impoverished areas in the United States, thanks to its partnership with the Helen Keller’s International ChildSight Program (TOMS official website). TOMS’ continued success demonstrates that companies no longer have to choose between earning profits and making a difference in the world, but it also sheds light on the fact that companies must consider the social and long-term economic consequences of their charitable actions.

Exhibit 1: An Array of Designs and Styles that TOMS offers to its customers

 

 

 

 

 

 

 

 

Exhibit 2: TOMS’ One-for-One Model in Action

http://www.TOMS.com/one-for-one

Exhibit 3: TOMS’ Marketing Campaign

 

 

 

 

 

 

 

Exhibit 4: TOMS’ “A Day Without Shoes” 2012 Video Thank You Video

http://www.onedaywithoutshoes.com/

Exhibit 5: 2011’s Successful “A Day Without Shoes”

 

 

 

 

 

 

 

Exhibit 6: TOMS’ 2008-2012 Income Statements

Income Statement	2011	2010	2009	2008
Revenue	$20,100,000	$16,500,000	$13,000,000	$9,600,000

 

 

Exhibit 7: TOMS’ Growth Rate

1 YR Revenue Growth Rate	21.8%
3 YR Revenue Growth Rate (CAGR)	27.9%

Exhibit 8: TOMS’ Revenue (2008-2012)

 

 

 

 

 

 

Exhibit 9: The Complete “A Day Without Dignity” Video

http://www.youtube.com/watch?v=isxxQm2_ud0

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