Blogs & Comment

Sometimes corporate social responsibility actually means putting profit first

Businesses often find their social impact is greater when they concentrate on their strengths

Railway lines diverging in fog

(Paulo Gobbo/Moment Select/Getty)

“My baby came to me this morning and said I’m kinda confused.
She said, “If me and B.B. King was both drownin’,
Which one would you choose?”

I was thinking about why making the right business decisions has become harder than ever when the song I Ain’t Heard You Play No Blues by the late Steve “Chicago Shorty” Goodman came to mind.

For most of us, deciding between right and wrong isn’t hard to do. Goodman’s dilemma—deciding between right and right—is another story entirely. For business leaders, increasingly this means balancing two very different perspectives: shareholders who expect executives to deliver better short-term financial performance and stakeholders who want more attention paid to the longer-term human and environmental consequences of business. And, as both shareholders and stakeholders have become more demanding, choosing the right path has become increasingly difficult.

The fundamental paradox is that most businesses are both irresponsible and responsible at the same time. Or, as Christine Bader describes in her book The Evolution of a Corporate Idealist: When Girl Meets Oil, corporations including her former employers at BP may well be “advancing human rights in some ways while compromising them in others.”

In the context of two competing sets of priorities, there is the possibility that neither business performance nor social change will be remarkable. In psychology, the challenge of deciding what to do when faced with two very different options is known as the Compromise Effect. In these situations people tend to favor a middle ground position that includes some benefits from each option but doesn’t result in significant change to either.

Further, the interests of shareholders and stakeholders are becoming more polarized, and attempting to balance the needs of each could be detrimental. Shareholders can sell their shares if they feel that their investment isn’t being maximized and stakeholders can compromise a company’s social license to operate if they believe its commitment to human rights and other issues isn’t adequate.

For me, one of the most important, and surprising, discoveries over the last few years has been that choosing the best approach to balancing business and social concerns starts with a decision to make shareholder interests the higher priority. I’ve found that the right business strategies can deliver significantly more value, in all respects, than is possible through a purely stakeholder-driven social agenda. Building schools, supporting worthwhile charitable organizations, and participating in campaigns by organizations such as the United Way are great ways to address the interests of stakeholders but rarely deliver business value or social change at the level that is possible through business programs.

READ: 23 Ways Capitalism is Saving the World

Global financial institutions are making their shareholders happy with new revenue-generating initiatives that create socio-economic value but may be alienating some stakeholders who believe that philanthropy is more appropriate. For example, in Canada, Bank of Montreal is working with First Nations people who have little or no collateral to create on-reserve housing loan programs. The programs are designed to reflect the specific needs of a First Nation and provide members the opportunity to own their own home or to finance major renovations to existing homes.

Resource extraction companies are recognizing that helping people in local communities to become entrepreneurs is better than funding local schools or health centres. In advance of production at its Éléonore mine in Northern Quebec, Goldcorp, one of the largest gold producers in the world, has partnered with the Tawich Development Corporation to help establish Wemindji Laundry, a new business that is creating local jobs, reducing Goldcorp’s environmental footprint and meeting the expectations of shareholders by lowering maintenance costs. It’s likely that this approach won’t be popular with some local stakeholders who may be expecting more traditional largesse.

It’s important to remember that not all business leaders worry about whether shareholders or stakeholders are more important. For owners of most small- and medium-sized enterprises, profit is the primary, and often exclusive, measure of success. In these companies, social and environmental concerns are most often in response to new demands from large customers such as Wal-Mart. In these cases, there is no dilemma—simply a new cost of doing business. Further, leaders of businesses that produce products that are harmful or dangerous (i.e. weapons, tobacco, etc.) aren’t likely to be thinking about more than meeting the expectations of their shareholders.

While deciding between right and right will never be easy, putting the interests of shareholders first is proving to be an effective approach to making a difference in a way that supports the priorities of investors. “Mainstream investors look at the world through a single lens microscope predominantly, which is return,” said Michael Jantzi, CEO of Sustainalytics, a company that supports investors around the world with the development and implementation of responsible investment strategies. “They’re looking at environmental social government issues, because they believe the companies that manage those risks and opportunities appropriately will generate better returns down the road.”

Of course, choosing between right and right will never be easy and there’s no decision that will satisfy everyone. The right decisions are those that reflect the company’s social purpose, organizational culture, and values of its leaders.

In my case, I happen to love the blues so Steve Goodman’s decision is one that I understand completely.

“And I said ‘Oh Baby, Oh Baby, Oh Baby, I ain’t never heard you play no blues.’” 

Paul Klein is president and founder of Impakt, a leading global CSR consultancy based in Toronto that helps corporations and non-profit organizations to become social purpose leaders.