Business Forum: The case against socially responsible business

Share with others:

Print Email Read Later

Recently, a constellation of corporate heavyweights and other worthies came out to launch the B Team, a coalition devoted to changing how companies do business. In the team's new "Plan B," people and the planet receive equal primacy with profits.

That sort of triple-bottom-line thinking might work for some companies, but to abandon the pure for-profit model altogether would be a huge mistake.

Plan A, where companies have been driven by the profit motive alone, is just no longer acceptable, the B Team's introductory video declares. Putting aside the question of "acceptable to whom?" -- plenty of shareholders seem happy with the profit motive -- the idea here is that most companies are operating in an unsustainable way that dooms society to ruin. If true, most chief executives must be fatalistic good-time Charlies who will get up and leave as soon as the party is over.

As believable as that image may be, the notion that the private sector seeks only short-term profits is naive. When resources are scarce, prices go up and companies are forced to change. Those that can't are replaced by new companies with different business models.

Some chief executives undoubtedly perceive this existential risk in the long term, and they plan their strategies accordingly. For those who don't, the B Team offers another maxim: "In the long run, what's better for the planet and its people is also better for business."

This is often true. Yet instead of invalidating the profit motive, this maxim actually reinforces its importance.

As Jonathan Berman and I have written in the past, for-profit companies that take a long time horizon in their decision-making are likely to make more social and environmental investments. Things like training workers, bolstering communities and protecting ecosystems can take a long time to pay off for private companies. When they do, the return -- including a stronger labor pool, a wealthier consumer base, fewer working days lost to strikes and protests, and greater employee loyalty -- can be comparable to other for-profit investments.

In fact, strictly for-profit companies can be among the best social investors because they apply the same discipline to these investments that they would to other parts of their core business.

Social enterprises undoubtedly do great things, yet to encourage every company to be a social enterprise, as the B Team does, is a tremendous error. It's also an error that the B Team's founders would have been very unlikely to make earlier in their careers.

When Richard Branson and Mo Ibrahim were building their businesses, did they tell potential investors that they would be trying to help people and the planet as well as turning a profit? Did they inform credit markets that debt repayment would be part of a triple-bottom-line strategy?

More likely, having now reached a comfortable moment in their professional lives, they have chosen to adopt the personas of benevolent elder statesmen. If this sounds familiar, it should. The United States, Western Europe and other wealthy countries have taken the same attitude toward the developing world. Even though their industrialization occurred with little regard for people or the planet, they now insist that China, India and the rest grow in a cleaner, greener way.

The B Team's rhetoric is not only hypocritical but also internally contradictory. The profit motive works just fine with the long time horizon they recommend. It keeps companies focused on what they do best, so they make social and environmental investments in the most efficient way.

If owners or shareholders want a company to be a social enterprise, that's great. But not every company has to be one. Strictly for-profit companies make our lives better just by creating and supplying the goods and services that we like, as well as giving us a way to earn a return on our savings. Isn't that enough?


Daniel Altman teaches economics at New York University's Stern School of Business and is chief economist of Big Think. He wrote this for Foreign Policy.


Create a free PG account.
Already have an account?