Extract from Chapter – ‘Profit and Social Business’
Some people ask, why exclude the idea of combining the power of the profit principle with the goal of social benefit—or “doing well by doing good,” as it is sometimes phrased? If the only aim is to eradicate poverty, for instance, should we not be pragmatic about how to get there? This might also include being pragmatic about the issue of profit. Some people might argue that a profit-making organisation can more successfully fight poverty. The prospect of making a profit might allow them to attract more capital, to expand their model faster, and hence to touch more lives, more quickly. This is the notion of the “double bottom line” or “triple bottom line” that some well-intentioned business people talk about.
I am not opposed to making profit. Even social businesses are allowed to earn a profit, with the condition that the profit stays with the company and is used to expand the social benefits the company provides. (I often use the word “surplus” to make a clearer distinction between this kind of profit and the profits earned by conventional businesses, which go to benefit the owners.) Profit in itself is not a bad thing.
However, social business is a new category of business. It does not stipulate the end of the familiar profit-maximising business model. Rather, it widens the market by giving a new option to consumers, employees, and entrepreneurs. It brings a new dimension to the business world and a new feeling of social awareness among business people.
To be perfectly clear: I am not asking business people to give up any of their businesses. Nor am I asking them to convert their businesses into social businesses. All I am saying is this: If you are worrying about a social problem, you can make a significant contribution to resolving the problem through the mechanism of social business. It is up to you to decide whether you want to do such a thing. Nobody will raise an accusing finger at you if you choose the path of conventional business instead. But you may feel happy if you follow the social business path.
I for one can testify that this is very possible!
So I have no intention of trying to coerce anyone into starting or joining a social business. But I do want to explicitly define social business as excluding the pursuit of profit or the payment of dividends to owners. There are three main reasons why this is important.
First, there is the moral argument. I believe it’s immoral to make a profit—and especially to pursue the usual business goal of maximum profit—from the poor. In effect, this is benefiting from the suffering of our fellow human beings. It seems to me that common human decency forbids such a thing.
When businesspeople ask me about the profits to be made in serving the poorest people in the world, I sometimes reply, “I have no quarrel with the pursuit of profit. But first let’s give the poor people the help they need to escape from poverty. Once they have become middle class, then I urge you to sell them all the goods and services you can—and make a handsome profit doing so! But wait until they are no longer poor before you exploit them. That is the only right thing to do.”
My second argument for defining social business as strictly avoiding the pursuit of profit is a pragmatic one. In times of stress, profit will always trump the other “bottom lines.”
When you mix profit and social benefit, and say that your company will pursue both goals, you are making life complicated for the CEO. His or her thinking process gets clouded. He/She does not see clearly.
In a particular situation where profit and social benefit need to be balanced, which way should the scales be tipped? What if it is possible to increase profit greatly by cutting social benefits just a little —is that all right? How should one judge? What about in times of economic stress, like a recession— is it all right to eliminate social benefits altogether in hopes of helping the company to survive? Why or why not? The idea of a “mixed” company offers no clear guidance on questions like these.
In practice, profit tends to win out in struggles of this kind. Most often the CEO will lean— perhaps unconsciously—in favour of profit, and exaggerate the social benefits being created. And if the CEO is a little unclear about the real priority, we can imagine that the middle managers and line employees will be even more uncertain. Over time, the social goals will gradually fade in importance, while the need to make money becomes more and more deeply ingrained in the company’s culture.
Social business gives a clear, unambiguous mandate to management. There is no balancing act involved. Every decision the company makes can be measured against a single yardstick: What will enable us to provide the greatest possible benefit to society? This doesn’t mean that the decisions are always easy—creative problem-solving is just as difficult in social business as in profit-maximizing business. But at least the manager isn’t forced to juggle two sets of mutually contradictory objectives.
Third is the systemic argument. It is necessary to create social business as a clearly defined alternative in order to change mindsets, reshape economic structures, and encourage new forms of thinking.
For many people, the biggest challenge seems to be getting over the hurdle of the no-profit rule itself. “Can’t we take a small profit?” I am sometimes asked. It seems as though the idea of profit is like a familiar crutch that businesspeople are afraid to throw away.
Trust me, it can be done! If you can agree to take a “small” profit (however that is defined), you can also persuade yourself to take zero profit. Once you get there, you find yourself in a new world, seeing and doing things in a new way.
Consider this analogy: Suppose you are trying to quit smoking. Would it be helpful or the opposite to allow yourself to take “just one small puff”? The answer is simple—“a little bit” of backsliding destroys the whole attitude.
In the holy month of Ramadan, Muslims are not allowed to eat or drink until after sunset. Why not take a small snack, or even a sip of water, during the day? It would destroy the strength of the mental commitment. In the same way, making a complete break from the for-profit attitude creates a huge and important difference for the businessperson who really wants to commit himself or herself to social change.
Social business is about totally delinking from the old framework of business—not accommodating new objectives within the existing framework. Until you make this total delinking from personal financial gain, you’ll never discover the power of real social business.
Let’s be very honest: The profit motive is extremely powerful. Once it gets its nose under the edge of the tent, it soon takes over the entire dwelling space. This is the problem with traditional capitalism, which is such a creative and effective force for good in so many ways. Capitalism has created poverty by focusing exclusively on profit.
It built a fairy tale of prosperity for all—a dream that was doomed never to come true. That’s why many European countries decided to empower their governments to take care of social needs, such as poverty, unemployment, education, and healthcare. They were smart enough to figure out the inability of traditional capitalism to solve these problems.
In the developing world, however, government lacks the managerial ability and material resources to create the kind of welfare state Europeans enjoy. In some other countries, such as the United States, cultural and political norms prevent government from addressing social problems. For these and other reasons, a new mechanism is needed. Social business can be that mechanism — provided it is kept completely free from the complication of profit-seeking. Being in social business is like being in a no-smoking zone—even a tiny little puff spoils the whole concept.