Businesses shouldn’t do good for the sole purpose of doing well
There’s much excitement in the business press these days about making the business case for nonfinancial matters. When I enter “the business case for” in my search box, Google completes my phrase with “racial equity,” “curiosity,” and “breastfeeding,” among other topics.
Academic journals and highly regarded business publications like this one often focus on such cases and coverage. Individual and institutional investors are also increasingly focused on how their money can help advance environmental and social causes, so much so that 83% of corporate leaders say that environmental, social, and governance (ESG) factors will drive their merger and acquisition decisions in the next couple of years.
Focusing on the business case for social issues is well-meaning, but it can be damaging in the long run. It implies that there is a financial cost-benefit analysis for all that ails us as a society, and that business is the solution. Moreover, if your financial case ends up not reaping the anticipated rewards, it leaves leaders skeptical of investing in what matters most—people.
We need to start asking a different question, focusing on how business serves the bottom line of humanity, not the other way around.
Business is and has always been a powerful driver of social impact, both positive and negative. We’ve come a long way since the dominant shareholder primacy view of the 1970s. Often attributed to Milton Friedman and the Chicago school of economists, they argued that the main purpose of business is to serve shareholders.
Today, the alternate framing of stakeholder capitalism is dominant. Many business leaders are engaging with stakeholders beyond their shareholders and creditors, and meaningfully assessing the business’s impact on all stakeholders. Beyond charity, investors are prioritizing companies that provide good jobs or mitigate climate change, and corporate leaders are more vocal on social issues such as racial equity and inclusive corporate culture.
Yet they often frame such efforts as not only beneficial to society but also crucial to their company’s success. Some scholars argue that making the business case for conscious capitalism detracts from the broader goal of enabling managers to run better organizations. As professors Robin J. Ely and David A. Thomas of Harvard Business School and Morehouse College, respectively, write about the business case for diversity, focusing on the bottom line implies that “taking an ‘add diversity and stir’ approach” is sufficient.
When diversity works in practice, it is because leaders allow the fundamental power structure of the organization to shift to include new voices. Focusing on the business case loses sight of the more difficult task of creating space for dissenting voices and dialogue, processes, and outcomes that are more difficult to measure.
Let’s instead make the social case for good business, flipping the equation to determine the value companies bring to society. We can ask: How does business affect people in organizations and people impacted by organizations? This opens up the conversation to a broad array of considerations, including job quality, dignity in the workplace, worker well-being, human rights in supply chains, and other hard-to-quantify matters.
One encouraging trend is that policymakers and corporate leaders are increasingly discussing the purpose of business, as demonstrated by the Business Roundtable’s updated Statement on the Purpose of a Corporation. Meaningfully focusing on business purpose is an opportunity to demonstrate a company’s license to operate in society.
If we must, we can continue to use financial jargon, impact measures, and the language of business to motivate and inspire leaders. But let’s not lose sight of what really matters: keeping people at the center of the equation.
Azish Filabi is executive director of the American College Center for Ethics in Financial Services and an associate professor of ethics at the American College of Financial Services.
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