A study released last week that examined corporate profitability is causing consternation in the ranks of the Corporate Social Responsibility industry, not necessarily because of its findings but the misleading way they're being summarized by the business press. The New York Times, for example, offered this headline: "To Be Good Citizens, Report Says, Companies Should Just Focus on Bottom Line," And within hours a half-dozen friends and colleagues forwarded the link, along with this general message -- "Another assault on CSR!"
Sadly, none of them had the opportunity yet to read the actual study, apparently including the headline writer for the Times.
Far from "dissing" the concerns and campaigns of CSR, the authors, Daniel Altman of New York University and Jonathan Berman of Dalberg Global Development Advisors, focus on the essential connection between business success and societal well-being: a long term time horizon. If a company thinks and acts long, the authors argue, the decisions it makes about where and how to invest -- are likely to create efficient private, as well as societal, benefits. In other words, with a long term view, the choices the company makes will be the most strategic. And if you have a long enough time horizon, a singular focus on profit is sufficient to guide wise choices. Amen.
"With a long enough time horizon," begins the paper, titled 'The Single Bottom Line,' "many social benefits created by the operations of for-profit companies can generate private benefits for the companies themselves. As a result, executives planning for the long term create social benefits in the most efficient way when they target a single bottom line -- profit."
The message has edge; I like it for several reasons.
First, the authors take a bat to recent notions intended to promote CSR, such as "double bottom lines," "triple bottom lines," and the new kid on the block, "Shared Value." These concepts certainly sell books, but they confound business people trying to figure out what to do. The same goes for terms such as "b-corps" and "social enterprises." These are useful notions for those building businesses that are anchored in social missions or for companies designed to appeal to green consumers, like Whole Foods, but are less helpful for most other firms.
Terminology that alludes to the social role that business plays is valuable because such words help illuminate the interdependence of business and society. But in general, in the world of public companies and complex markets, multiple bottom lines are too complex to be taken seriously by those who are calling the shots. And that's where we need the most help -- in those massive globe-trotting, resource consuming, public companies that are required to report earnings every quarter. For those companies, Altman and Berman's conclusion that a long term time frame is most profitable and beneficial for society is welcome news indeed.
The authors also bring to light the important role that government plays in business success when it tackles issues such as investment in infrastructure and education, and environmental regulation, which by and large are outside the control of business, but are vital to its success.
Finally, the article reminds us that the essence of a company is not its philanthropy, and a company's charitable efforts rarely offer a window into its core values. In too many cases, a firm's philanthropy becomes a container for the loftiest aspirations of its leaders, who actually exercise far more societal influence through their business decisions -- such as how they hire and train their workers, source their products, and market their goods and services.
The further removed one is from Wall Street's obsession with quarterly profits, the more the wisdom of adhering to a long-term timeframe seems to make fundamental sense. My father was an engineer, a lifer with "The Phone Company." Once, when I attempted to explain what I do -- without lapsing into the jargon of CSR and sustainability and stakeholders and all that -- there was a long pause before he spoke: "Aren't you just trying to say that business ought to take a long term view?" Again, I say, Amen.
"Enterprise is any organizational activity aimed at a specific output or outcome. Once the output or outcome – the primary objective – is clear, an organization operating to fulfill the objective is by definition an enterprise. Business is the most prominent example of enterprise. A business plan, or organizational map, provides a reference regarding how an organizational scheme will operate to produce a specific outcome: provision of products or services in a way to create profit. Profit in turn is measured numerically in terms of monetary gains, the “bottom line.”
This is the function of classic capitalism, which has proven to be the most powerful economic engine ever devised.
"An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. ....(cont)
http://en.for-ua.com/analytics/2007/08/09/110003.html