Big Ideas: Can corporations maximize profits by being ethical?
Corporations producing more ‘ethical’ products are not going to solve our problems of over-consumption.
It is becoming more common to believe that corporations can maximize profits by doing good. Particularly in the U.S., there is a cult of technology where people remain faithful that innovative firms will solve all the worlds problems. Is it possible that ethical corporate behaviour can co-exist with the goal of profit maximization?
In the HBR article Ethical Capital Is Capitalism’s New Cornerstone, Umair Haque writes;
20th century capital isn’t fit for 21st century prosperity. Today, long run productivity gains aren’t just a function of being able to utilize machines, cash, or skill — but being able to utilize all the above without damaging the natural world, abusing the powerless, and taking from the future. Understanding ethical capital is what lets companies, countries, and people get there. It is the cornerstone of authentic prosperity, achieved without hidden costs, invisible subsidies, and socialized losses: it is what maximizes thick value, and minimizes thin value, what lets a company not just make a profit — but make a meaningful profit that matters.
In a separate article Haque talks about Pepsi:
Pepsi, for example, is a “great” company: it’s great at mass-producing, push-distributing, mega-marketing, and hard-selling…sugar water. But Pepsi’s finding out the hard way that all of the above is a commodity. The shelves are brimming over with different flavours of sugar water — and customers are tuning it out, governments are attacking it, and rivals are bettering it. Pepsi’s great at producing something that’s bad for you; it isn’t yet a company that maximizes good. Why is Pepsi striving to get “more good” with radically innovative initiatives like Refresh? Because in the 21st century, merely being great in the sugar water business is a one-way ticket to strategic irrelevance and economic oblivion.
I think it is fantastic that “Pepsi is giving away millions of dollars to fund great ideas” with it’s Refresh initiative but that should be looked at in relation to its more than a billion dollars of retail sales per year. I would say that the best thing Pepsi could do to “maximize good” in Haque’s definition, is to stop selling Pepsi. I don’t think Pepsi is alone. A trip to any major shopping mall in the world will present an over-whelming surplus of stuff that is not particularly good for us or the planet. Almost everything we buy is “damaging the natural world, abusing the powerless, and taking from the future” in someway or another.
The problem with relying on corporations to solve the world’s problems is that for most of the things we consume, there are so many negative externalities not priced into the products. One study estimates that the environmental and human health costs of a 50 cent hamburger, can be as high as $200. Solutions are not going to be found by producing more environmentally friendly hamburgers. We need to stop producing and consuming hamburgers. That is the real issue our society needs to face. Most of what we consume is killing us and or the planet.
This is what Pepsi says on it’s corporate website:
PepsiCo’s people are united by our unique commitment to sustainable growth, called Performance with Purpose. By dedicating ourselves to offering a broad array of choices for healthy, convenient and fun nourishment, reducing our environmental impact, and fostering a diverse and inclusive workplace culture, PepsiCo balances strong financial returns with giving back to our communities worldwide. In recognition of its continued sustainability efforts, PepsiCo was named for the third time to the Dow Jones Sustainability World Index (DJSI World) and for the fourth time to the Dow Jones Sustainability North America Index (DJSI North America) in 2009.
Remember, this is the same company selling “sugar water” around the world. Getting a little more efficient at producing junk food is not exactly making the world a better place.
Don’t get me wrong. I am as profit-maximizing as the next person, but my role as an entrepreneur is very different than the things I do for free. All corporations should strive to improve because it is better for the bottom line as well as the planet, however I think we should step back and realize that even more environmentally friendly companies are still in the business of getting us to over-consume. Profit-maximization is still fundamentally at odds with reducing our environmental footprint and really contributing to social good. Seth Godin uses the phrase “merchants of dissatisfaction.”
Many marketers are able to sell their wares by making us dissatisfied with what we already have.
It’s not that far from, “This will make you happy!” to “You’re unhappy/ugly/lonely/using obsolete technology, better buy this which will help fix the problem.”
If entrepreneurs are really focused on being ethical then wouldn’t it make more sense to start a non-profit organization? Run businesses as normal but take all excess profits above a comfortable (but not excessive) salary and re-invest them for social good. Dressing up our desires to get rich as trying to make a difference in the world might make ourselves feel better about our consumption, but it is not really addressing the problems of the world.
Could GreenPeace, the Salvation Army, WikiPedia or LINUX have been as successful if they were for-profit enterprises? Adam Smith’s ‘invisible hand’ brought us to this level of prosperity but we can’t ignore the fact that it has also been the source of most of our problems. It is no coincidence that the most entrepreneurial countries in the world are also the most obese, polluting and energy consuming with the highest income inequalities.
Isn’t it time our most talented entrepreneurs and academics choose a non-commercial path and seek to bring about real positive change in the world? Something is wrong with our metrics when a “sugar water” company is recognized for its “continued sustainability efforts.”