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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  1. 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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  2. 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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  3. 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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  4. 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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  5. 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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