Should companies give up maximizing their profits to do good for society? What does profit actually mean for a company in the first place? Midori Toya, ESSEC GBBA student and Vice-President of ENACTUS France, tackles the issues and calls for a new form of hybrid business model.
Social contribution and profit – are companies facing a trade-off? by Midori Toya.
Shift in the for-profit sector
By letting the non-profit sector deal with social problems, companies have long been focused on increasing sales and maximizing profits. In other words, companies have kept a distance from social matters, their sole interest has been to keep generating the revenue. However, there has recently been a major shift in this corporate attitude in different fields, ranging from companies’ CSR (Corporate Social Responsibility) practices to their marketing strategies – for example, social marketing: a strategy that aims at influencing an individual’s behavior for the benefit of society as a whole. Moreover, companies are now actively taking part in a wide range of social movements, such as combatting gender discrimination.
By actually engaging with social and environmental concerns – rather than operating business outside of them – companies are slowly but surely taking part in the work which a few decades ago was thought to be the that of the non-profit sector.
Shift in the non-profit sector
There has also been a big shift in the non-profit sector, the conventional approach to combatting social inequalities. Dan Pallotta, activist and fundraiser, gave the inspiring talk “The way we think about charity is dead wrong” at a TED conference in 2013, urging us to change our presumption on nonprofits.
When it comes to the non-profit sector, we generally think that any work must be voluntary and should not be compensated. Because of this tendency to believe that working in the non-profit sector will not – or rather, should not – be highly paid, many talented people, even though they aspire to make social changes, face a trade-off between their ambition and economic sacrifices, and end up working in the for-profit sector.
In addition, doing charitable activities is deeply welcomed by society, whereas promoting these activities in the way that a business does – by means of marketing and advertisement – is not. As such, even great accomplishments and innovative ideas to improve our society get disregarded. The non-profit sector should spend more on “advertising” their activities and raising public awareness – something that would eventually improve overall welfare in society. In a word, Dan Pallotta believes that the non-profit sector can achieve better, and greater social good by applying methods used in the for-profit sector.
Combined together, for-profit companies behaving like non-profits and non-profits leaning towards the for-profit business model can create a new form of business: a hybrid of for-profit and non-profit. However, the biggest question is “how can we make a profit out of it?” And this brings us back to the very first question “what does profit actually mean?”
What does profit mean?
The apparent answer to the question “what does profit mean?” is, of course, money. Money has served as a measure of success in the world of business, from a company’s net income to stock price. Yet behind all these numbers, there are real human beings. It may seem evident, but once a business starts to get off the ground and grow bigger, it can easily be covered by all those spectacular numbers on financial statements. And just as there are infinite numbers between 1 and 2 – 1.0001, 1.0002 – there are infinite human interactions behind the word profit. When companies focus only on the numerical side of profit, they are trapped in myopia: a number is just a consequence – therefore, it should not be the end in itself.
What companies should focus on instead are the human interactions behind profit and improving customer experience that requires further engagement in social issues by companies. For example, the improvement of employee working condition. By focusing on the human side of profit – values that cannot be measured in money – companies will be able to create a virtuous cycle, better customer experience leading to long-term customer loyalty and, thus, sustainable business revenues. The good news is that more and more companies are starting to realise it. But the bad news is that they are few to actually do it.
Buying is voting
So, what should we do? As a consumer, we should not wait for companies to change – we should change, too. We blame business for wrongdoings in society and environment, but as a member of society each of us is also responsible. And being a consumer means that we have a “right to vote” for companies to which we entrust our future. Buying is voting. When we buy things, we are ultimately voting for the entire chain of operation of the company, declaring “Yes, we support your business and I want you to continue.” What is essential for us consumers in the 21st century, where social challenges and environmental crises are in the hands of business activities which are based on consumption, is to reflect on what we are buying and from whom we are buying. We need to understand the consequences of our actions and be proactive in the improvement of social well-being by using our “right to vote” properly.
Social contribution and profit: A win-win is possible
Should companies give up maximizing their profits to do good for society? The answer is no; companies will not face a trade-off between social contribution and profit in a society where consumers are aware of the impact of their buying behaviour. Consumers will buy products from companies that are socially responsible and environmentally sustainable, allowing them to continue generating revenues and thus profit.
In addition, the non-profit sector is beginning to market itself – higher salaries attract more talented and skilled people, and the promotion of their activities through advertisement increases public visibility and attention. This accelerates charitable actions and, as a result, achieves greater social good. For-profits, non-profits and consumers – each stakeholder has a crucial role to play in building a better future. If they work together cooperatively in a responsible way, there will no longer be a trade-off: each social contribution creates a profit, and each profit created contributes to society.
- Link up with Midori Toya via LinkedIn
- Discover ESSEC Business School
- Learn more about the Global BBA at ESSEC
- Read a relayed article: Why boards must impulse just corporate transitions
- Download this feature and others in Global Voice #10.
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The Council on Business & Society (The CoBS), visionary in its conception and purpose, was created in 2011, and is dedicated to promoting responsible leadership and tackling issues at the crossroads of business and society including sustainability, diversity, ethical leadership and the place responsible business has to play in contributing to the common good.
In 2020, member schools now number 7, all “Triple Crown” accredited AACSB, EQUIS and AMBA and leaders in their respective countries.
- ESSEC Business School, France-Singapore-Morocco
- FGV-EAESP, Brazil
- School of Management Fudan University, China
- IE Business School, Spain
- Keio Business School, Japan
- Trinity Business School, Trinity College Dublin, Ireland
- Warwick Business School, United Kingdom.