The New York Times recently released an online article intitled: « To Be Good Citizens, Report Says, Companies Should Just Focus on Bottom Line ». I suggest you read it since it has many interesting facts.
I’m always in the middle of discussions between professionnals who talk about the importance of KPIs and the tripple bottom line. On the other hand, and to some in this article, the social responsibility of business is to make profits as stated by Friedman. Well to surprise a few, I would have to agree with Friedman…
Obviously, I couldn’t go and argument on the article he made in the 70’s since I’m myself propably going to have matured in the next couple of years and be able to improve what I’m writting these days. So I can’t argument on a statement made 40some years ago.
I would like to start on the premise that the societal responsibility of business is to make profit. But what is profit? Seems like a pretty stupid question, I agree. But bear with me a bit. Why was money invented? Here is what Wikipedia tells us about money:
Money is any object or record, that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment. Any kind of object or secure verifiable record that fulfills these functions can serve as money.
But the question was: what is Profit?
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs (both explicit and implicit) of a venture to an entrepreneur or investor, whilst economic profit (also abnormal, pure, supernormal or excess profit, as the case may be monopoly or oligopoly profit, or simply profit) is, at least in the neoclassical microeconomic theory which dominates modern economics, the difference between a firm‘s total revenue and all costs, including normal profit. In both instances economic profit is the return to an entrepreneur or a group of entrepreneurs. Economic profit is thus contrasted with economic interest which is the return to an owner of capital stock or money or bonds.
And thus I believe that the societal responsibility of business is to make profits, although the monetary aspect of it is suppose to be a translation of value creation between entities. I would not state that Creating Shared Value (CSV) surpases Sustainability as Michael E. Porter and Mark R. Kramer present it in their Harvard Business review article. I would say that CSV is sustainability. One model among others. Although Porter and Kramer present it with their usual brilliance.
But lets keep this short enough. Money is the translation of value from one entity to the next. Profit is the gain that can be made when exchanging values between entities. This gain is depends on the perception of value by the entities. Thus if we consider money as a medium of value, a single bottom line is enough if we are able to translate externalities as well as direct gains in monetary terms. Utopian you say? Well Rio Tinto in its Social Risk Analysis tool gives a monetary value to its social acceptability. Althoug imperfect since it is a decision making tool, it is an example of what can and should be done.
If we don’t put monetary value on externalities, it as if if navigate in a troubled sea with no idea of where we are and what the weather will be…
Evidently, I don’t have the perfect solution to translate every externalities in monetary terms and thus have a single bottom line. I believe that the leadership of organizations is still responsible for that. We need, at this point, management tools that help our leaders create value (in a broad perspective). I don’t believe that we should report on these measures since they are not solid and can be challenged. I do believe we, as manager, need to take externalities into account so we can reduce risks, create opportunities and yes, make profits.