According to Adam Smith, credited with being the Father of Modern Economics, “If you continue to operate in your own self-interest, you will do the best good for society.” That sentiment was echoed by American economist and free market champion, Milton Friedman, who said, “There is only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.” So for business, in the view of those two gentlemen, profit isn’t the main thing, it’s the only thing . . . a singular focus on profits is the best way for business to benefit society. But is that still true today? Maybe not. For more on this, please continue reading below.
How to Make Money and Do Good
There’s a growing body of thought, in businesses large and small, that creating financial value and creating social value are not mutually exclusive activities . . . that they can, in fact, complement one another. While Smith and Friedman seemed to say that building a strong, profitable business alone creates a social benefit, many of today’s business leaders are saying that we have to do more . . . that we have to attack some of today’s social problems more directly. Consider:
- A soap manufacturer that donates product and conducts hygiene programs in third world countries where unsanitary conditions cost millions of lives every year.
- Companies that have pledged to buy raw materials only from renewable, sustainable sources.
- Companies that are committed to reducing their “carbon footprint” by using clean energy sources like wind or solar.
- Companies that manufacture and package their products in ways designed to make them recyclable.
To be sure, there’s no shortage of corporate greed or of companies that behave in ways that are socially irresponsible (think Volkswagen). But as more companies embrace their social responsibilities, the companies that do not will stand out in a way that will not be helpful. If you want to differentiate yourself from your competition, being socially irresponsible would not be a very good way to do it.
While we’d like to think that there’s an altruistic motive for companies to be socially responsible . . . and there’s certainly some of that . . . there’s more. There are also some smart business motives at work here too.
- It’s good for employee relations. Survey after survey shows that employees want to be involved with something that’s bigger than themselves . . . something, beyond a simple profit motive, that excites them and makes them feel good about themselves.
- It’s good for community relations. Whether your community is global or very local, you need the good will and support of that community. Being seen as a good corporate citizen earns you that support.
- It’s good for customer relations. Your customers, at least those who see themselves as socially responsible, want to do business with others who are socially responsible. Plus, by doing business with you, they hope the good will you are generating for yourself will also rub off on them. It’s good will by association.
Small companies may see “saving the planet” as the job of big, multi-national companies. Not true. Small companies may have to participate on a smaller scale, but they can still participate in ways that will have a big impact on their respective communities. You can “adopt” a small, local charity. You can set aside a day to staff a food pantry or a soup kitchen or to work on a “Habitat for Humanity” project. Some companies give every employee one day off per year to pursue a charitable activity of their own choosing. So regardless of your size, there are ways to create social value within your community. All you need is the will to do it.
But if by doing good we improve employee relations, community relations, and customer relations, will we necessarily improve our profitability? Almost certainly you will although computing a precise ROI or proving a direct cause/effect relationship would be tough. In this case, you may have to be satisfied that by doing the right things, you’ll be doing things right.