Doing the Right Thing or Making a Profit - Which Comes First?
If a company "does the right thing" when it comes to
environmentalism, social justice, or some other public issue, does the
motivation matter?
There has been much talk about creating social or shared value in recent years. Harvard Business School professors Michael Porter and Rosabeth Moss Kanter are among those who have asserted that companies should care about their impact on employees, communities, and the planet as they pursue profit. Other voices such as Eric Lowitt, author of The Future of Value, have outlined how companies can create value by pursuing sustainability.
The deeper question for leaders is which is the cart and which the horse? Does one pursue social responsibility because it is profitable, or does one endeavor to be profitable with a business model that explicitly incorporates some version of social responsibility? Does it matter?
In my own work, I have come across many businesses that embarked on their journey toward social responsibility because it was a way to save money or increase revenues. I have advised people to fit the sustainability to the culture of the organization: in a growth-oriented firm, highlight the market-expanding opportunities; in a cost-conscious company, talk about saving money. This is a basic tenet of persuasiveness.
The question of motive was posed by Mitch Tyson, a serial high-tech CEO I met at a meeting of the Boston Area Sustainability Group. Tyson was provocative. He said that there was a time when he did not care about why. His particular passion was clean energy, and he was happy so long as it got greater traction. Over time, however, he changed his mind. He came to realize that why is an essential part of the equation for long-term success and impact.
Profit or cost-savings as the primary motive has an obvious weakness: as soon as it becomes more profitable or less costly to do something that is not socially responsible, one would expect the company to pursue that path. A central tenet of those who advocate for shareholder capitalism is that profit should be the only goal of a business: a firm's only obligation is to generate returns for its shareholders. Under this logic, the only reason to pursue a social goal is the belief that there will be a positive financial return associated with that activity.
That evening, Tyson put this question in the context of providing health insurance to employees — a topic much in the news. Tyson said that he could have decided to provide health insurance for his employees because insured workers tend to be healthier, and healthy workers perform better and are absent less often. Instead, he did it because he felt it was simply the right thing to do.
Tyson said that he thought about what he would say to his own family if asked about why his company insured its workers. If it was for purely selfish reasons, that would send one message. If it was because it was the right thing to do, that would send a very different message.
He thought about the ripple effect of that message on his family and the families of his employees. He understood that for clean energy to someday become the norm, enough people would have to be willing to look at various alternatives, weigh both value and values, and opt for the one that was the right thing to do.
I see this debate as part of the most critical job of leaders: to establish clarity about purpose, values, and the business model. Purpose is about articulating what it is you are trying to build. Values define how you will pursue that purpose. The business model spells out how the organization will remain financially viable, delivering sufficient short-term returns to investors while establishing a platform for long-term success. Broadly speaking, for-profit leaders tend to put the greatest emphasis on the numbers; nonprofit leaders at defining purpose, or mission. Clarity about all three — purpose, values, and the business model — is essential for every organization if its leaders and followers alike are to know what is the right thing to do.
There has been much talk about creating social or shared value in recent years. Harvard Business School professors Michael Porter and Rosabeth Moss Kanter are among those who have asserted that companies should care about their impact on employees, communities, and the planet as they pursue profit. Other voices such as Eric Lowitt, author of The Future of Value, have outlined how companies can create value by pursuing sustainability.
The deeper question for leaders is which is the cart and which the horse? Does one pursue social responsibility because it is profitable, or does one endeavor to be profitable with a business model that explicitly incorporates some version of social responsibility? Does it matter?
In my own work, I have come across many businesses that embarked on their journey toward social responsibility because it was a way to save money or increase revenues. I have advised people to fit the sustainability to the culture of the organization: in a growth-oriented firm, highlight the market-expanding opportunities; in a cost-conscious company, talk about saving money. This is a basic tenet of persuasiveness.
The question of motive was posed by Mitch Tyson, a serial high-tech CEO I met at a meeting of the Boston Area Sustainability Group. Tyson was provocative. He said that there was a time when he did not care about why. His particular passion was clean energy, and he was happy so long as it got greater traction. Over time, however, he changed his mind. He came to realize that why is an essential part of the equation for long-term success and impact.
Profit or cost-savings as the primary motive has an obvious weakness: as soon as it becomes more profitable or less costly to do something that is not socially responsible, one would expect the company to pursue that path. A central tenet of those who advocate for shareholder capitalism is that profit should be the only goal of a business: a firm's only obligation is to generate returns for its shareholders. Under this logic, the only reason to pursue a social goal is the belief that there will be a positive financial return associated with that activity.
That evening, Tyson put this question in the context of providing health insurance to employees — a topic much in the news. Tyson said that he could have decided to provide health insurance for his employees because insured workers tend to be healthier, and healthy workers perform better and are absent less often. Instead, he did it because he felt it was simply the right thing to do.
Tyson said that he thought about what he would say to his own family if asked about why his company insured its workers. If it was for purely selfish reasons, that would send one message. If it was because it was the right thing to do, that would send a very different message.
He thought about the ripple effect of that message on his family and the families of his employees. He understood that for clean energy to someday become the norm, enough people would have to be willing to look at various alternatives, weigh both value and values, and opt for the one that was the right thing to do.
I see this debate as part of the most critical job of leaders: to establish clarity about purpose, values, and the business model. Purpose is about articulating what it is you are trying to build. Values define how you will pursue that purpose. The business model spells out how the organization will remain financially viable, delivering sufficient short-term returns to investors while establishing a platform for long-term success. Broadly speaking, for-profit leaders tend to put the greatest emphasis on the numbers; nonprofit leaders at defining purpose, or mission. Clarity about all three — purpose, values, and the business model — is essential for every organization if its leaders and followers alike are to know what is the right thing to do.
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