Are Socially Responsible Businesses Bad for Society?

Writing for Foreign Policy, Daniel Altman argues against socially responsible business initiatives such as the recently launched “B Team.”  For-profit companies, explains Altman, often think long-term:

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. Energy and mining companies, for example, have some of the longest time horizons in the private sector, and they tend to be big social investors as well. Some European companies have actually stopped issuing quarterly reports to shift the attention of analysts to the long-term. And because they are still targeting a single bottom line, profit, there’s no loss of clarity about their mission or erosion of transparency for shareholders.

In Altman’s view, the clarity issue is an important advantage of for-profit companies, and a disadvantage of companies with a triple bottom line:

Clarity and transparency are important parts of the for-profit model’s inherent value. Chief executives know what shareholders expect of them, and there is a straightforward, verifiable, and comparable way to measure their performance: profit and loss. This is not the case for companies with triple bottom lines. Even if companies measure the effects of their operations on people and the planet, every company may choose a different set of metrics, and the weight given to each metric in their decisions may be far from obvious. Shareholders in for-profit companies already have to worry about executives piling up perks and building empires; a triple bottom line may muddy the waters even more.

This is the essential problem with social enterprises. They may have admirable goals, but investors cannot always be sure of what they’re getting; the company’s mission depends on a concept articulated by a founder or a statement that’s open to interpretation, rather than the simple goal of profit.

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COMMENTS: 15


  1. Ellen says:

    Informative, however, how does the text answer the question posed in the title and how are the benefits of for-profit companies attempting to add social value to their portfolio of community services relate? Kind of a no brainer. I was hoping to learn more about how for-profit and social businesses have or do not have an edge when implementing socially aimed schemes.

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  2. Erin says:

    Can you link to the article? I would like to read the full text. I couldn’t readily find it on the Foreign Policy website.

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  3. Charles from NJ says:

    While I don’t have the data to prove him right or wrong, I think it’s interesting that the author uses energy and mining companies as examples of social investors. They’re usually seen as the great villains in battles centered around social issues. It would seem to me that for-profit companies are only catalysts of social change or investors in social capital if their profits are positively impacted by that social issue.

    I think a good example might be Toyota. In designing a Prius, they found themselves on the right side of a social issue, but only after they figured out they could turn a profit. That’s fine, and it’s good that they’re doing it, but it’s not as admirable as a social company or a B-corp working with the express purpose to conserve energy and reduce emissions. And, if the social issue flips back to something like it was in the mid-90s, electric cars may not be as profitable anymore allowing Toyota to maybe rethink its focus in hybrid energy. No long term investment at all.

    Interesting point the author makes though. Definitely one to keep in mind.

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    • Pseudonym says:

      Yes, when I think of the way in which a mining company may be “irresponsible”, I think of a company that comes into an area, mines stuff out of the area, then does not clean up the area after they’re done.

      While a mining company is operating a mine, I’m sure that many companies see it as in their best interest to foster the local economy and environment and so on. But when the mining operation is winding up, that’s exactly the time when it is worse for their profit to do anything about the local environment, unless they care about good will (i.e. they are a socially responsible business) or there are regulations.

      A better example would be logging companies, which often do think long-term. Even clearfell logging operations typically replant after they’re done in a coup; that way, there will be more trees in a few decades’ time. So if tree count is your measure, modern for-profit logging companies tend to do the right thing. (If you measure short-term wildlife habitat loss, of course, then some of them don’t do so well.)

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  4. James says:

    There’s also the question, following on from the triple bottom line problem, of just whose ideas of “social responsibility” are going to be implemented.

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  5. Bob says:

    I don’t think the question should be if they are “bad” for society. Socially responsible businesses have a stated goal which most of the time is aimed at improving quality of life for people in one way or another. The question should be whether they improve society as efficiently as for-profit businesses.

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  6. Joby Elliott says:

    “Energy and mining companies, for example, have some of the longest time horizons in the private sector, and they tend to be big social investors as well.”

    Wait, what?

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  7. brian says:

    2 thoughts:
    1. long-term planning in a business context and long-term in social/environmental impact/change context are very different. the author cites using yearly vs. quarterly statements as an example of long term planning when social and environmental change tends to happen over decades such as civil rights, immigration policies, global warming ….
    if the “long term” lasts one day past the retirement date for executives or the expected divestment date for shareholders there is no long term planning in the private market.
    2. the author assumes complete information or, at minimum, easy monitoring of financial health and performance when saying that a traditional for profit has more clearly defined outcome measurements than the bottom line. history shows us that financial statements are dense enough to allow unethical managers to hide true performance long enough to make true real-time monitoring of firm performance less than ideal….much like the case he makes for the triple bottom line.

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  8. sfer says:

    “Energy and mining companies, for example, have some of the longest time horizons in the private sector, and they tend to be big social investors as well.”

    Energy and mining are extractive industries. Their timeline is only as long as they see future potential profits. As a major element of cost is capital, this means that as the resource dwindles, the incentive for long term investment dwindles. This means a dying power plant or a mine approaching the end of its resource will be starved for capital investment, and that the owners will seek to transfer costs to workers (cutting pay and benefits) or to society (pollution). There are waterways still poisoned from mining that ended over a century ago.

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  9. RicardoB says:

    Triple bottom line companies can have “straightforward, verifiable, and comparable way to measure their performance”: just because many put the cart in front of the horse doesn’t mean the whole idea is the problem.

    Plant X trees, reduce CO2 production, etc. Sure the simplicity will have externalities but no worse than being single-minded about profit.

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  10. Dave says:

    I would turn around the question and ask if socially responsible businesses are bad for business. And the answer, as the author has already hinted is yes: it is just not possible to serve two masters at the time and have both pleased… unless you have them agree their terms.
    In the case of socially responsible business I believe that it is wrong to measure there performance in the financial scale. That is just not what a socially responsible business is about. Social responsibility shall be trade off between the financial and the social bosses along the lines of fixing the outcome on one side (making x% profit or a certain amount of social investment) and just turning as much profit as possible on the other side. But it is not possible to maximize in two direction at the same time.

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  11. Julien Couvreur says:

    I don’t know if this is a question which can be answered by economists in the abstract, or should be subjected to the market test.
    If consumers, workers or investors prefer getting involved with such companies (ie they get some benefit as a consumer good), then such companies are arguably socially beneficial. But they may not be socially beneficial in the way that you were thinking.

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  12. mannyv says:

    Don’t forget that non-profits tend to pay their staff substantially less than their for-profit brethren at all levels of the organization…except at the top.

    In fact, one could argue that Foxconn, the boogeyman of asian capitalism, treats their workers better than most non-profits do…at least when it comes to wages and benefits. After all, Foxconn work is a gateway to a better life, whereas non-profit work isn’t really even a living wage.

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  13. C, O'Connell says:

    I believe that socially responsible businesses are not bad for society. For example, Save-a-lot uses eco-friendly grocery bags instead of your typical plastic bag you would use at Tops Friendly Markets. These grocery bags are made out of cloth. You’re required to buy them, but they can be used numerous times. This is a good thing because there will be less pollution throughout the country! This also saves money because the company won’t have to continuously buy grocery bags or hire people to clean up the plastic litter.

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