Not All Profit is Equal

 

 

 

We’ve been told that you cannot make money while helping the poor because that's morally repugnant. But I believe you can ‘do well’ by ‘doing good’ and balance a social agenda with a profit agenda.

There’s an old idea kicking around in a new set of shoes, and that old-new idea is about creating shared value. This column is a riff on a recent speech I gave about corporate social responsibility (CSR) and the theories of Harvard professor Michael Porter. Whether you’re running a nonprofit or a for-profit, you need to care about shared value.

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As a for-profit you likely have some CSR in place: poverty-alleviation projects you support, environmental metrics you use and codes of conduct you have in place. But what you’re still up against is the granddaddy of neoliberal economists, Milton Friedman, who said “The only business of business is business.”

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The Business of Being Good

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How does being socially responsible fit in with the profit-driven model? CSR programs typically remain a reactionary response to external pressures like protesting customers. Too many CSR programs are an exercise in feel-good publicity, and as such are considered an inconvenient, but necessary expense. CSR is a cost centre, not a profit centre.

 

Indian steel magnate Jamsetji Tata felt differently.

 

“In a free enterprise,” he said at the turn of the last century, “the community is not just another stakeholder to business, but is in fact the very purpose of its existence.”

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Tata believed businesses can only be sustainable if they served a larger purpose in society. But nonprofits and for-profits continue to focus on efficiency. How many widgets produced or how many bicycles delivered to poor kids? Why not think instead about innovation in market development and product design?

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The strongest competitors establish the deepest roots in their communities. What do those communities say about what products and services they need? My development project is only going to work if I put deep roots into the communities and populations I work with. A valid criticism of development—and especially humanitarian work—is helicoptering in, dropping off the emergency food and tents, posing for some grip-and-grin photos and you’re out. We call those parachute projects.

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And in some ways, that also looks a lot like CSR.

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Enlightened Self-Interest

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Put in a health and wellness program or hire the disabled, but at the end of the day this is an economic constraint that just raises costs and eats profit. Or so the thinking goes. But shared value isn’t an imposition of personal values or wealth redistribution. Shared value simply means addressing a social issue or problem with a business model. (This is also a great definition for social enterprise). Can we look at energy inefficiency, slum dwellings, dirty drinking water and unemployed youth as a productivity driver, not as photo-ops?

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CSR too often targets the symptoms, not the causes of poverty and inequality. If nonprofits now embrace microfinance and impact investing, then for-profits can embrace shared value as a better understanding of competition and economic value creation. Shared value isn’t philanthropy; it’s self-interested behaviour. I’d even call it enlightened self-interest, but that’s a really old idea.

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Business as usual is not an option. The cost of inaction is disproportionately higher than the cost of action and the longer we wait, the more expensive fixing things will be. We need to stop thinking about ‘social’ as being good, ‘doing good’ or even being 'responsible', and look at it instead as ‘opportunity’.

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Photo: Pineapples / unsplash.com

 

This article originally appeared in Word Vietnam magazine and has been adapted. To view the magazine’s online version click here.

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