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Do You Believe a For-Profit Company Can Both Do Well And Do Good?

From the rise of the hybrid, to the increasing popularity of impact investing, the social impact space seems to be flush with the question “Can a for-profit company both do good and do well?” In the next couple of weeks, our friends at Net Impact will be gathering with 28,000 young professionals in Baltimore to explore how they can put their business skills to work for good throughout every sector.  In the midst of the fervor, tell us: Do you believe a for-profit company can both do good and do well?

Photo: Asian Development Bank

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2 5 2015
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A “for-profit company can both do well and do good”; the real question is, should it? The words “both” and “and” strongly suggests that the two actions (“do well” and “do good”) are either unrelated or are not required to be related -- which inherently creates an ethical and legal dilemma for a purely for-profit company with a fiduciary obligation to create economic value for its shareholders. However, a for-profit company can do well by doing good and it can do good in order to do well. In other words, a for-profit company can and should act in its own best interest to create real social value that improves the bottom line and creates economic value for its shareholders.  

This distinction constitutes the intrinsic difference between the classic Corporate Social Responsibility (CSR) model and the Creating Shared Value (CSV) model of social impact. Take Fair Trade purchasing, which is the example Michael Porter and Mark Kramer discuss in “Creating Shared Value: How to fix capitalism and unleash a new wave of growth” (Harvard Business Review, January-February 2011). CSR focuses on paying poor smallholder farmers higher prices for their product. As the authors put it, from the CSR perspective, there’s a limited amount of wealth to go around and smallholder farmers aren't getting a fair share of the pie; therefore, socially responsible companies should pay the farmers a higher price for their product to ensure they are earning a livable wage. By adopting the CSR practices of Fair Trade, smallholder farmers will realize a 10-20% increase in income and company shareholders will feel socially responsible.

CSV takes a completely different perspective. Porter and Kramer explain that, instead of seeing a need to give smallholder farmers a larger piece of the pie at the expense of a company's shareholders, CSV sees an opportunity to make the pie bigger – to create more value for both the company and the farmers. Companies taking a CSV approach look at how they can improve the entire industry cluster and positively impact both the supply and demand sides. They understand that promoting consumption will increase market demand; that providing farmers with training and technical assistance in new and better growing, harvesting, and post-harvest processing techniques and practices, and creating or improving access to fertilizers, better seed, irrigation, power generation, modern farm vehicles, tools, and equipment, and affordable credit will help farmers produce larger and better quality crops; that increasing supply-chain efficiency and improving distribution-logistics will reduce the time it takes to get those crops to market;  and that, as a result, farmers will not only have both better quality crops to sell (commanding a higher price) and greater quantity of crops to sell (multiplying the value effect), they will be able to retain more of the value of their crops. Taking a CSV approach and implementing these and other social and economic value measures not only leads to dramatic increases in farmer productivity and crop-yield per hectare, it enhances the condition of the soil (which can also facilitate both crop-and consequently, income-diversification), raises the value of the land, reduces farmers' vulnerability, improves farmers’ quality of life, and, according to the findings reported in Harvard Business Review, can increase the incomes of smallholder farmers by as much as 200-300%!  (It also creates solid economic value for the company and its shareholders.) 

As the example above demonstrates, by Creating Shared Value, a for-profit company can fulfill both its social responsibility and fiduciary obligations -- it can do well (i.e., it can improve the bottom line and create real economic value for its shareholders) by doing good (i.e., by creating real, sustainable social value).   

Answered almost 2 years ago exdir1 143 from United States

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Answered almost 2 years ago edward whyman 2 from United Kingdom

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Yes , a for_profit company can both do good and do well.

If the a bad can do good, the good can do better than that.
The conviction matters. 
The good goes with lime light, all the time. It is recognized and draws people towards it. World wide examples are there. 
Most importantly it gives that extra incentive called, peace and happiness from within.
I
Answered almost 2 years ago uma venkatachalam 4 from unknown

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The for-profit model is the most versatile form of organization for unlocking individual potential in the history of man. It can be applied in countless situations, used for multiple purposes, has endless permutations, and continues to evolve over time. But like all models or systems or philosophies, the for-profit business is just a framework, it can both do well and do good in the hands of the social entrepreneur. 


The beauty of the for-profit model is that the requirement to be self-sustainable creates the potential for optimal operating decisions, focusing all stakeholder energy in the right direction and balancing competing interests. In the hands of the social entrepreneur the for-profit model is an engine for creating sustainable benefit.  It requires clear and conscious management to constantly balance interests, for no company can be unbalanced and survive over time, but it is the same rebalancing that is required no matter if the form of organization be for-profit, non-profit or government. 


We see the for-profit model used successfully in every aspect of our lives including communications, education, elderly care, food, medicine, security, transportation and utilities. There is no limit to where a for-profit organization can operate and for what purpose.


For-profits employ many different models of corporate structure and ownership. Many for-profits are private, some are owned by their employees (Publix Super Markets, Hy-Vee). Others are public but concentrate control in a few hands to ensure adherence to founding principles (Facebook, The New York Times). As these examples show, for-profit models can be setup to sustain practically any purpose.


The for-profit model is still evolving as with the creation of Flexible Purpose Corporations (FPCs) in California and other states. FPCs support the entrepreneur who wants to use a for-profit model in new and creative ways to solve any number of problems.



Ren

San Francisco, CA

Answered almost 2 years ago ren 4 from United States

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I absolutely believe that it is possible for a company to do well (be profitable) by doing good. To me, the key is the definition and measurement of value creation. Unlike a pure for-profit entity, hybrids have a legal mandate to create social value, but for-profit investors can require this of their companies as well. 


Hybrid social enterprises like ours are more or less required to convert traditional value (money) into social value (good) through a socially innovative product or service. But you don’t have to be a hybrid entity in order to do good – it just makes sense for some entities, like us, to be hybrids, depending on the industry.

To me, for-profits across every sector and industry are certainly capable of this same value conversion – we see it in the marketplace all the time. However, the behavior cannot be sustained in for-profit entities that have investors who demand financial returns exclusively.

How can we address this? By defining success differently. For the for-profits who have the double or triple bottom lines (profit + social impact + environment), the investors are allowing management to forgo better financial returns (e.g. 5% instead of 8% ROI) in exchange for positive social returns (doing good and doing well). Hybrids never allow this decision to be made by the investors since it is enforced through their legal structure.

The investors of a for-profit company are the ones who hold the key to triple bottom lines, but management must lead them to make this decision. I believe there is one primary exception to this: true social innovations, intentional or unintentional, by for-profit entities that are 1) delivered to the market, 2) are responsible for a significant share of revenue, and 3) respond to regular market forces (doing well is doing good). Managers of for-profit companies can prepare an organization to transition to double or triple bottom line by encouraging and rewarding employees to develop socially-conscious innovations. 

The organizations “in need of improvement”, in my opinion, are those that extract value rather than create it, in any form. These organizations will be required to change their models soon – a changing economic culture led by the growing influence of Millenials like myself and most folks in the Echoing Green community will force it upon them through market forces of supply and demand over the coming years. We can already see it happening in some sectors…

In summary, for-profit managers have a “fiduciary” responsibility, but investors can ensure there is a social and environmental responsibility as well in order for a company to do well and do good. I believe that Millenials will drive companies toward these double or triple-bottom lines – not as PR stunts, but as genuine efforts as customers or managers of these organizations to do better

- Jesse Chen
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Answered almost 2 years ago jchen 26 from United States

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