How can a company best achieve social impact, while also being large and profitable?
That question lies at the heart of what this newsletter is about. To date, I’d say, the right answer remains elusive. In my view, even companies that believe they have found a good model (such as Airbnb, which we covered last week) often fall short.* So will we ever see companies be the “greatest platform of change” in society, as Salesforce CEO Marc Benioff puts it?
I do believe so. But to get there, companies must first get unstuck from the inconsequential but dominant “do good” model of the past: that of “corporate philanthropy,” which is not integrated into the business model of the company, or “corporate social responsibility” (CSR), in which a company devotes a relatively small part of its activities to doing good.
According to Isaac Getz, a professor at French business school ESCP, there are other pitfalls keeping companies from living up to their greatest potential, to which even B Corps fall prey: to “chase too many rabbits at the same time,” and to get the order wrong between doing good and doing well. More on that later.
The Holy Grail, he believes, is for companies to pursue a social good without further ado, and without exception. These are what he calls “altruistic companies”—an eye-opening framing (disclosure: Getz serves as the advisor on my academic research).
Start with the basics. Since the dawn of industrialization, philanthropy has been the main way for companies to do good. It’s Anheuser-Busch holding a brewing competition that benefits its nonprofit partners, or Chevron empowering women in Latin America. Yes, it creates a social good. But as it’s relatively small and unrelated to the core business, it arguably does not affect a company’s overall impact.
The same is true for CSR, which is a step beyond philanthropy, as it often ties in with the company’s activities, like Anheuser-Busch advocating for recycling cans in sports stadiums where its beer is sold. It’s positive, and related to the business, but often insignificant as a source of revenue or impact.
“Creating shared value” goes yet one step further. It’s Nestlé, for example, investing in regenerative agriculture, to the benefit of all those involved: the farmers in its supply chain, itself, and its consumers. But since it’s also still only a part of the business impact of Nestlé—which also stretches into retail, packaging, consumption models, and so on—Getz still sees it as noncore.
Then there are B Corps, or stakeholder companies. It took me longer to understand their limitations. They pursue positive social and environmental impact in all they do, and consider all their stakeholders, while still pursuing profit. Isn’t that the perfect model?
No, says Getz. Sure, B Corps are about doing good in an all-encompassing way. But by going after environmental, social, and economic goals all at once, they “chase too many rabbits at the same time.”
Simple math, Getz argues, shows that adding a constraint (doing well) to a linear equation (doing good) will never yield as good an outcome as without the constraint. So ultimately, one is sacrificed at the expense of the other.
B Corps and stakeholder companies also get a cause-effect relationship wrong, Getz believes: They go after ESG and profit goals simultaneously, not understanding that doing well (making a profit) can or should be the result of doing good (having a positive social impact through ESG performance).
Enter the altruistic company. This is where everything comes together. These companies pursue a social good without thinking of profit first or at the same time. But by being so good at what they do, they often end up being extremely successful and profitable after all.
The problem with this category, Getz acknowledges, is that its members are few. (Making a comparison to the industrial revolution, Getz told the Financial Times’s Andrew Hill last year, that businesses are only at “the beginning of the 19th century” in adopting models like the altruistic enterprise.) The best known, perhaps, is Handelsbanken, a Swedish bank that branched out to the U.K. In the U.S., a good example is the FruitGuys, a healthy office snacks provider based in San Francisco.
Over the next few months, let’s find out if there are more good examples. And if you’re still contemplating attending Impact Initiative, Sept. 12–13, in Atlanta, social impact will be prominently on the agenda. You can still sign up to join us here.
More news below.
Peter Vanham
Executive Editor, Fortune
peter.vanham@fortune.com
*Airbnb took issue with how The Impact Report covered their model last week. We updated that edition to address their exceptions here.
This edition of Impact Report was edited by Holly Ojalvo.
ON OUR RADAR
Investors warn ‘fluffy’ ESG metrics are being gamed to boost bonuses (Financial Times)
Three-quarters of S&P 500 companies now use ESG metrics to help determine executive pay packages, the FT noted in a piece this week. But some of the investors it contacted are growing skeptical because ESG metrics are “very subjective, fluffy and easily gamed,” one investor was quoted as saying. Employee engagement scores are a particularly worrisome metric, another said. “We have frankly never seen a company ever score under median for employee engagement. These things can be gamed.” Should ESG metrics disappear from executive pay? My take: That would be a step back. But remuneration committees should actively ensure that ESG metrics don’t lead to cynicism.
