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Defending The Ethics Behind TOMS' Business Model

Summary

Exploring the "one for one" model, and why people either support it or are against it.

Using Utilitarianism to defend the model.

Using Kantianism to defend the model.

There are many different companies in the world that use all different types of strategies to sell their products. Some companies for example try to focus on a specific demographic, while others try to spread awareness to as many people as they can. Regardless of their specific approach, they all aim to profit. They succeed when their product is able to bring in more revenue than cost. In order to maximize revenue, sometimes they even have to engage in unethical tactics. One company in particular that has received a lot of debate about their business model is Toms. Using the ethical argumentation of Kantianism and Utilitarianism, this article will argue that Toms' business model is both helpful to the general public and morally sound.

Toms is a for-profit fashion company that was founded in 2006 by Blake Mycoskie. The company primarily focuses on the manufacturing and selling of shoes, but has now developed other products like bags and eyewear. What separates its casual footwear from other competitors is its slip-on design. The shoes themselves have received a wide amount of popularity, especially from millennials and students on college campuses. Beyond its design, Toms separates itself using the "one for one" economic model. The "one for one" model is based off of the idea that for every pair of shoes the company sells, it will give one away to someone in need. The model initially received so much positive reception that in 2006, Andreas Widmer's social equity fund awarded Toms a prize for being an "innovative enterprise solution to poverty." According to a study conducted by the University of Pennsylvania, from 2006 to 2014, Toms has given away more than 35 million pairs of shoes in 60 countries. The company's charity has certainly come with success, and its business model has been copied by a number of companies such as Warby Parker, Roma Boots, Nouri Bar, and Soapbox Soaps.

Toms has used its charitable business model as a focal point for marketing. Although the company has more costs due to the charity it does, it makes up for it through sales. Deborah Small, a professor of marketing at Wharton, notes, "we know from research that people are most motivated to help when they feel a connection to those who they're helping…it is easier to connect to a person than to an abstract action." What she is referring to here is the power of the company's advertisements. In many of their advertisements, the company shows kids in developing countries actually receiving the shoes. The ads typically start with the kids frowning and shoeless, and then after they get the shoes, they are all smiling and running around. The impact of the shoe is supposed to come off as far more than just an extra piece of clothing. Toms uses the shoe as a symbol of hope and opportunity in struggling communities. When a person purchases a pair of their shoes, they know they are not just getting something for themselves, but also are giving something special to someone in need. This direct connection between consumer and recipient is what Toms uses most to push sales.

Although on the surface Toms' charity seems like its noble, some people have advocated that it causes more harm than good. One of the effects that the giving away of shoes has is on the developing country's economy. When shoes are given away for free, people no longer need to go out and buy these shoes locally. This causes shoemakers in the area to lose money, and sometimes go out of business. In developing countries, local companies are already under a lot of pressure to survive because consumption is typically low. When a competitor, especially one who is giving away the same product for free, is introduced, those local companies almost always fail. This causes serious economic stagnation as people lose jobs, and overall production falls. A study conducted in 2008 "found that used clothing donations to Africa were responsible for a 50 percent reduction in employment in that sector between 1981 and 2000 on the continent." In an article by Jonathan Favini, he argues "a more effective alternative would be to support local business by selling locally made shoes internationally, rather than bringing free ones into the community." One company that has succeeded with this strategy is Nisolo Shoes, which sells Peruvian made shoes to the American public.

Another criticism of the Toms model is that it is inefficient. Rather than donate a pair of shoes, the company could do many other things for a struggling community that would provide much more good. For example, they could use the same money to build a local hospital. In these countries, kids are often suffering from problems that are much bigger than bacteria touching their feet. A local hospital could provide daily help to people suffering with diseases, and ultimately save lives. The money could also be used to provide food. According to the World Food Programme, "the vast majority of the world's hungry people live in developing countries, where 12.9 percent of the population is undernourished." The issue of needing food certainly comes before needing shoes. If Toms decided to spend the money they do on making shoes for the kids on food, then they certainly would be able to actually help more people. All of this criticism is derived from the idea that Toms isn't actually providing any real good to the people or their economies. It suggests that they manipulate people into thinking their doing charity in order to boost sales, when in fact their consumer is only adding to the problem. The shoes are essentially meaningless because the recipients don't really need them, and they even end up hurting local economies. This all suggests that Toms' business model in reality is unhelpful and immoral because it manipulates consumers' emotions in order to profit.

Although the criticism towards Toms seems to suggest that its business model is immoral, it in fact is not. By applying the principles of Kantianism and Utilitarianism, one can see that their model is inherently good. The rest of the article looks to use both theories to prove this idea.

Jeremy Bentham and John Stuart Mill have come to be known as the founders of utilitarian theory. The theory is generally centered on the idea of maximizing happiness and minimizing suffering for the greatest number of people. A good way to think about it comes from an excerpt from Ethics: "…compare the benefits and costs of each alternative. Whichever has the greater net benefit is the best alternative. Such an approach begins with the belief that we can measure and compare the risks and benefits of various actions. The idea is that actions are morally better or worse depending on whether they produce pleasure or pain or, more abstractly, on how they affect human well being and happiness" (Ethics Chapter 5). Mill develops on this idea by defining the "Greatest Happiness Principle as the one that holds that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness" (Mill 14). When applying this theory to Toms, it becomes clearer that the company's business model is moral.

First, it is important to look at the cost and benefit of the charity that Toms does. In order to address this, one must look at what would happen if Toms did not give away shoes. Thus, would people be better or worse off? The fact of the matter is that children are receiving an object that they did not have previously. And this object is something that is making their lives better. The cost is that it affects local economies in developing countries. As a result, people are certainly losing money and jobs. When you weigh the few amounts of people who are suffering vs. the huge amounts benefiting, it becomes clear that their action is moral. In this scenario, they are affecting human well-being in more of a positive way than in a negative. On a side note, the children receiving shoes are also part of the demographic that were never in the market to buy shoes anyways.

Toms could most likely still sell their shoe based off their design, but choose to engage in charity. The morality of the charity itself as a vehicle to drive sales is one that will be discussed later on in the paper using Kantianism. Since utilitarianism is much more concerned with the consequence an action brings about, it is much more relevant to focus on what the charity does than why it is being done here. Toms' strategy also adheres to Mill's point about the Greatest Happiness Principle. The giving away of the shoes promotes more happiness than the opposite. Mill also discusses the idea that utilitarianism considers "not one agent's own happiness, but the greatest amount of happiness altogether" (Mill 10). What Mill is referring to here is that utilitarianism is concerned more so with making more people happy than less, and not considering one person's happiness as more important than another's. Applying this to Toms, it strengthens the argument because it values each kid's happiness as equal to each person who loses a job's displeasure. Although there is probably more displeasure that comes with losing a job than happiness that comes with getting a pair of shoes, the numbers still turn out positive. In reality, there is hundreds of thousands of people receiving shoes compared to the maybe fifty local producers losing jobs.

Kantianism can be used to explore the morality behind the charity of Toms. In order to fully prove that Toms' business model is moral, their intentions and not just the results it brings must also be. According to Kant, "the essence of morality consists in the Categorical Imperative of the unconditional form: C.I.: You ought to do Y" (Thompson 63). The use of the word 'ought' suggests that the imperative is a universal one, not one to be applied based on the circumstances of a certain situation. There is a clear difference here between what Kant is saying and what Utilitarianism suggests. In the later, an action is justified based on if it brings about a greater good. In the former, "a morally right action must be done for a morally right motive" (Thompson 64). The morally right motive is what establishes why it ought to be done and why it shouldn't just maybe be done. At the core of Toms' model exists the idea of charity. On their list of values, corporate responsibility to the public is among the top ones. The company believes that they it is their "imperative to improve the lives of people through business…and that we operate in a manner that's consistent with our brand values." There are certainly a lot of companies that preach these same values, but most of the time they have nothing to show for them. In order for Tom to engage in the type of charity they do, their costs increase two-fold. The shoes they make to send away are the exact same shoes that consumers buy. Thus, the margin for profit becomes halved because their cost essentially doubles. From its inception and through recent recessions, the company has stayed true to their message of charity. Even in the years when the company brought in the least amount of money, they continued to manufacture shoes for charity. This proves that their belief of helping people is a universal imperative, and not one that changes depending on the situation.

Part of Kantianism is the idea of absolutism versus relativism. Kant wanted to save "morality from becoming too naturalistic and too relativistic…and show that it has a claim on us that is itself absolute and incontrovertible" (Kuehn 263). He furthers this point by saying that "it is this moral claim on us that elevates us above the beasts" (Kuehn 264). The primary difference between absolutism and relativism is the concept of right and wrong. Absolutism stresses that there are things that are right and then there are things that are false. Relativism argues that the truth of things is dependent on each person's views, and there is nothing that can be regarded as universally true or false. Regardless if Toms implicitly says it or not, the responsibility that corporations have to helping others is one they see as true. From their values and track record, their unwillingness to budge on giving shows that charity is an action that is incontrovertible.

Finally, Kant's philosophy is also centered on not using people as a means to an end only. As Kant says, "there is still only a negative and not a positive agreement with humanity as an end in itself unless everyone also tries…to further the ends of others…for the ends of a subject who is an end in itself must as far as possible be also my ends, if that representation is to have its full effect in me" (Guyer 201). What Kant seems to be suggesting is that humans have a moral duty to better the ends of other people. When people selflessly help each other, the agreement in humanity becomes positive as everyone's ends are furthered. This idea certainly applies to Toms' business model. The counterargument would be that Toms does reduce the recipient of the shoes to a means-to-end only. This would be true if they didn't care about them and simply were using them as a tool to profit off of. However, Toms has continued to find ways to make their charity more efficient for the recipient. They continue to give away shoes, but have developed other products but kept the model true to what it is. For example, for every pair of glasses they sell, Toms will restore sight to an individual through "sight-saving surgery, prescription glasses or medical treatment." Toms has clearly continued to keep the relationship between what they are selling and what they are giving away constant, but are continuing their efforts to promote the happiness of others. By keeping what people need in mind as they expand, they are certainly able to make sure they are not turning them into instruments.

Toms has certainly received a lot of attention from different people over the years. Some have advocated that what they are doing is corrupt and immoral, while others have applauded them for their charity. While the immoral take at first seems plausible, it fails to fully understand the intentions and greater good that Toms has on people's lives. When judging an action of a person, it is always important to look at why they are doing it and what the action is specifically bringing about. By applying both a utilitarian and Kant perspective to Toms' model, it becomes clear that what they are doing is moral and helpful on both accounts.

Bibliography:

1. Contributors, Wharton. "The One-for-One Business Model: Avoiding Unintended Consequences." February 16, 2015. Accessed May 08, 2016. http://knowledge.wharton.upenn.edu/article/one-one-business-model-social-impact-avoiding-unintended-consequences/.

2. Favini, Jonathan. "Some Bad News about TOMS Shoes." April 18, 2013. Accessed May 09, 2016. www.whydev.org/some-bad-news-about-toms-shoes/.

3. Guyer, Paul. Kant. New York, NY: Routledge, 2006.

4. "Hunger Statistics," World Food Programme, 2016, accessed May 08, 2016, www.wfp.org/hunger/stats.

5. Kuehn, Manfred. Kant: A Biography. Cambridge: Cambridge University Press, 2001.

6. MacKinnon, Barbara. Ethics: Theory and Contemporary Issues. 8th ed. United States: Wadsworth Publishing Co, 2014.

7. Mill, John Stuart. Utilitarianism, Liberty and Representative Government. London: Everyman's Library, 1971.

8. Thomson, Garrett. On Kant. United States: Wadsworth Publishing Co, 1999.

9. "TOMS Corporate Responsibility." 2016. Accessed May 09, 2016. www.toms.com/corporate-responsibility.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.