Most investors believe businesses should focus on the traditional, strictly financial bottom line on companies’ income statements; that’s that. However, increasing attention paid to corporate social responsibility efforts takes a different bottom line into account: the social one.
In the last several years, many big, well-known businesses have greatly disappointed the public when it comes to their impacts on greater society. It’s the perfect time to discuss whether multiple types of “bottom lines” should be essential in business and investing.
Seeds of good
Earlier this week, The New York Times posed the idea that good corporate citizens “should just focus on the bottom line.” The article covered a recent paper from Dalberg Global Development Advisors, which describes itself as “a strategic advisory firm that works to raise living standards in developing countries and address global challenges.”
Consultants Daniel Altman and Jonathan Berman released the argument in the paper The Single Bottom Line, dismissing double- or triple-bottom line strategies some companies pursue in philanthropic and corporate social responsibility, or CSR, initiatives as distractions.
The argument that many businesses do generate significant social good simply by focusing on generating profits is a sound one, but I’d argue it’s too easily misconstrued or mishandled by many investors and way too many corporate management teams.
Granted, the very best corporate citizens do plant the seeds for positive end results for society at large. The article cited Berkshire Hathaway’s Charlie Munger, who once said, “Costco
Berman's examples: Cargill, which gives African cotton farmers seeds to grow food; and ExxonMobil’s
When the bottom line is a race to the bottom
Then again, the flat, blind “go out there and pursue profit at all costs” mandate (similar to a common Milton Friedman quote I poked at in 2008) has been abused many, many times in our marketplace.
We all know there are too many examples to count, especially in the ugly last several years. The explosion (and worker deaths) at Massey Energy’s Upper Big Branch mine in West Virginia last year has been attributed to negligence arguably tied to the pursuit of profit. An independent investigation blamed the company’s safety failings, such as inadequate ventilation in the mine.
Meanwhile, I’d have to agree with critics of Massey’s recent acquisition by Alpha Natural Resources
Last spring’s Deepwater Horizon disaster in the Gulf of Mexico disaster is another easy example. Although BP
The fact that one of the involved companies, Transocean
Is it too much to ask?
I agree with the idea that the best companies out there operate in a good, ethical, socially beneficial manner and therefore have a better chance of reaping copious profits.
Proponents of conscious capitalism or stakeholder capitalism argue that operating a truly good business that generates goodwill and loyalty among employees and customers does enrich that one important financial bottom line; it doesn’t have to be an either/or proposition.
Until more corporate management teams can distinguish between greedy, negative self interest that tears away at social good and enlightened, positive self interest that increases it, maybe corporations should obsess about juggling a bunch of different bottom lines. Or maybe they could just realize that if they incorporate social good into their missions and purpose, maybe life would be a heck of a lot better for all of us.
We shareholders need to ask this of corporations, too, and demand merit, good business practice, and long-term thinking. As Altman’s and Berman’s paper concludes: “The main challenge facing the single bottom line is the issue of time horizons ... But a more fundamental change in shareholder attitudes, linking rewards for executives to long-term performance and ceasing to punish those who accept upfront sacrifices for long-term gains, may be necessary before the single bottom line yields its greatest rewards for both companies and society.”
Is it too much to ask? Share your thoughts on this topic in the comments box below. What’s the “best” bottom line?
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.
Alyce Lomax does not own shares of any of the companies mentioned. For more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.