Corporate Social Responsibility at Gravity Payments

The goal of this activity is to understand the importance of corporate social responsibility (CSR) activities undertaken by various businesses.

Both market and nonmarket stakeholders expect businesses to act responsibly, and many companies have responded by making social goals a part of their overall business operations and adopting the goal of being a good corporate citizen. As described in the following case, businesses embracing these responsibilities often build positive relationships with stakeholders, discover business opportunities in serving society, and transform a concern for financial performance into a vision of integrated financial, social, and environmental performance.

Read the case and write a case brief that includes your responses to the questions following the case.

Case Facts

Dan Price, the founder of Gravity Payments, a small, privately owned company that provided high service and low-cost credit-card processing, surprised his 120-person staff when he announced in 2015 that over the next three years he would raise the salary of all employees, even the lowest paid clerk, customer service representative, and salesperson, to a minimum of $70,000. The average annual salary at that time at Gravity was around $48,000, so the increase would nearly double some employees salaries. Price explained that he would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the companys anticipated $2.2 million in profit.

Prices announcement was met with mixed reactions. Some employees were thrilled, clapping and whooping when they heard the announcement. Othersmany from the financial services communitysaid that this was just a costly publicity stunt. However, others were supportive. Job seekers by the thousands sent in rsums. Harvard business professors flew out to Gravity Payments headquarters to conduct a case study. Third graders wrote Price thank-you notes, and single women wanted to date him.

Price was no stranger to the spotlight. He had earned the honor of Entrepreneur of the Year in 2014 from Enterprise Magazine. GeekWire named Price its Young Entrepreneur of the Year in 2013, and in 2010 he received the Small Business Administrations National Young Entrepreneur of the Year award. Price also annually donated 10 percent of Gravitys profits to charity.

Price launched Gravity while attending college, but the firm actually grew out of a technology consulting business he created while in high school. His goal was to manage credit card transactions for small businesses in a more affordable and transparent way.

Financial analysts recognized Gravity Payments success; his company processed nearly $10 billion in credit card transactions and generated revenues of about $150 million annually. When asked why he did not cash out, Price responded, Ill ask my friends who have sold their businesses, Did that business get to the goal that you originally had in mind? And theyre all happy they sold because of the phenomenal financial outcome. But when I ask them, Did you actually accomplish the nonfinancial goal that you set out in starting a business? . . . they almost all say no.

Price encountered hard times in 2008 when Gravity lost 20 percent of its revenue nearly overnight because customers were running less volume through the system during the economic recession. Price recalled that half of his staff was in his office asking for raises and the other half was definitely afraid they were going to lose their jobs. So, he called his employees together and explained that the company had eight months of cash in the bank. If we hold our expenses steady and just sell the same amount every month for five months, well get back to break-even and not have to do any benefit cuts, any layoffs, anything like that, he told his staff. Given Prices response during the economically challenging times, it did not surprise his employees when he took the bold move of promising every employee a salary of $70,000 annually.

Prices commitment to a new company minimum wage captured national attention given the soaring disparity between executives pay and that of their employees. In the United States, where the pay gap was the greatest for any country, chief executives earned more than 300 times what the average worker made. The market rate for me as a CEO compared to a regular person is ridiculous, its absurd, explained Price, who admitted that his only main extravagances were snowboarding and picking up the bar bill for his friends. He drove a 12-year-old Audi, which he received in a barter for service from the local dealer. Fifteen months after Prices unprecedented announcement, his employees decided that he should not be driving around in his 13-year-old Audi, so they bought him a Tesla. Price posted to his Facebook page, Gravity employees saved up and pitched in over the past six months and bought me my dream car. A brand new, gorgeous blue #Tesla. Still in shock. How do I even begin to say thank you? As for the pay raises, commentators remained divided. Paul Davidson, of USA Today, commented, Big pay hikes may yield surprisingly beneficial results, especially in the current tight labor market. Yet, other experts said that the outsized, across-the-board increase Price shelled out should not set a benchmark for most companies.

Required

1. Is Price demonstrating elements of corporate social responsibility by his actions in this case, or not?
2. How is Price exhibiting the fourth Phase of Corporate Citizenship (Figure 3.2, 1990s to Present: Corporate/Global Citizenship) in his actions at Gravity Payments?
3. What arguments in support of, or concerns about, corporate social responsibility (referring to Figure 3.3) are relevant to this case?
4. Is Price acting like an executive of a firm that could be certified as a B corporation?
5. What stage of global corporate citizenship (using Figure 3.5) is Gravity Payments operating at, and why do you think so?