‘Don’t be intimidated by conventional ideas.’
Those were the words of our Course Director at our EMBA induction dinner.
There’s one conventional idea that I’ve found particularly hard to swallow: the primary purpose of business is to make profit.
Sometimes this narrative is explicit and direct, and sometimes it’s more subtle or nuanced. But it’s lurking. So it’s promising to see Cass starting to take steps to bring it into the limelight for some critical reflection.
Of course profit is essential for business sustainability. Businesses require capital to grow. Raising capital requires investors and investors require returns. That puts investors (and the profit needed to deliver the required rate of return) in the driving seat. So yes, profit is essential for business sustainability. But profit no matter what?
The problem is not profit per se. The problem is profit as an end in itself, and the bigger problem is the pursuit of profit with disregard for the impact it has in reinforcing our social challenges and systems of inequality (or ‘negative externalities’ in economic terms).
The issue is how profit is made and how profit is used.
I’m not talking about isolated instances of Corporate Social Responsibility (CSR), ‘ethical duties’, greenwashing or developing morally conscious branding campaigns to appeal to millennials (while in the background the fundamental nature of the core business continues to have negative impacts on society). I’m not talking about being pressured to respond to a heightened awareness in popular culture of environmental and social issues in order to attract staff and customers (and therefore make more profit). I’m talking about building social purpose into the heart of business: elevating social goals to a strategic level, from ‘bolt on’ to ‘built in’.
This is of course already reflected in an array of existing business models in the ‘fourth sector’ like social enterprises, benefit corporations, community businesses, cooperatives and models of community ownership, which are growing in the UK and around the world. These alternative structures are part of the vision of a ‘social economy’, and there are forms of both debt and equity finance cropping up to support them, like social investment and community shares.
The problem is, these alternative models upset the neoliberal, capitalist apple cart that our current economic system is based on.
As our economics textbook put it: the ‘clear risk’ in governments becoming shareholders of banks following the financial crisis is that they could direct banks to prioritise social objectives over commercial ones. How outrageous!
Critical theory would have us ask: why are things the way they are, and whose interest does that serve?
Traditionally the corporate sector is paid enormous executive salaries and bonuses to deliver profits to shareholders, which works as a beautiful self-reinforcing cycle allowing the wealthy at the top to become wealthier.
Meanwhile, 14.3 million people live in poverty* in this country– that’s 22 per cent or one in five.
One. In. Five.
Sixty per cent of those people are in in-work poverty (they remain in poverty even while working). Is it just me that finds that profoundly shocking and completely unacceptable? Never mind the housing crisis, the environmental crisis … this list goes on. These aren’t faceless ‘negative externalities’. They are real people. Real lives.
Most people start with government and the welfare system as the solution to social challenges, but while there are many opportunities for change in Westminster, the government only controls around 40 per cent of GDP. The rest is in the hands of business, and it’s our interactions with business that dominate our day to day experience.
There are positive signs of a shift in conventional thinking. Blackrock’s recent letter called ‘A Sense of Purpose’ said that ‘companies must benefit all of their stakeholders, including the communities in which they operate’. In a similar vein, Deloitte’s 2018 Global Human Capital Trends survey showed that businesses are no longer measured solely on their financial performance but on the support they give to the communities in which they operate and their impact on society as a whole.
There is indeed much businesses can do to realign spending priorities away from bonuses and dividends to shareholders already firmly within the 1 per cent. For example they could: increase wages for their lowest paid staff, reduce prices so more people can afford their services, offer apprenticeships, cap the wages and bonuses of executives, procure from social businesses in supply chains, abolish zero hour contracts, and create affordable childcare for working parents.
Of course none of those suggestions come without complex trade-offs, but many of these options can generate a win-win. Take Michael Porter’s concept of shared value, where, for example, supporting marginalised communities to produce coffee beans on fair wages generates a sustainable and affordable supply chain for a coffee company while lifting a whole community out of poverty.
Two of my classmates recently asked me for ideas on how they could support charities, specifically disadvantaged children, and it got me thinking about we can do at Cass as students and faculty.
One of the reasons I applied for the MBA was to bring the principles of good business into the third sector and share them with the network of 600 community businesses we support at Locality.
Because the third sector has an unfortunate ‘conventional idea’ of its own – that business is greedy, uncaring and often corrupt. I’ve heard many a snide comment about ‘people in suits’, some of which were very justified and others which were simply a regurgitation of an accepted narrative without reflection. There is work to do to change the perception of business from a self-interested vehicle for free market capitalism to an agent for change.
But importantly, the education process can also work in reverse. We need to bring the social principles from the third sector into the world of business.
Because there are indeed things that business can learn from the third sector. Doing good and doing business can in fact be intrinsically interlinked. It doesn’t have to be either/or, it can be both/and.
What would happen if we removed the separation between ‘business’ and ‘not-for-profit’ and explored the grey space in between? As the Director of the Community Shares Company said: ‘the economy is not simply made up of charities and hard-nosed capitalists’.
The ‘social sector’ doesn’t have to exist in some kind of parallel universe far away from the world of business with the only bridge being CSR initiatives. CSR (done genuinely and well) is great, but there’s no net benefit in a business giving a cash hand-out to a food bank when it doesn’t pay its staff the London Living Wage; or a bunch of corporate volunteers from a bank going to paint a fence when the interest rates they’re charging on the charity’s loan means the charity can’t afford to hire a painter; or a confectionery company that sponsors a children’s charity when it’s core products increase childhood obesity.
In fact, this only reinforces and embeds the structural causes of our social challenges. It also keeps the third sector small – Dan Pallotta’s Ted Talk sums this up well.
The business models that foreground social impact need to be discussed and explored not just in third sector echo chambers, but in business schools. Not only to create new start-ups, but to adapt and transform current business models to build in genuine social purpose and explore what responsible business looks like in practice – to improve people’s lives and make profit.
(Needless to say I was thrilled to see a whole lecture dedicated to social business in our corporate strategy module!)
As MBA students, we can ask why things are the way they are, what can be changed, and how this can be done.
Rather than abdicating responsibility for business’ contribution to social challenges Milton Freedman style, or seeing the solution as a hand-out to charity, we can look inside our businesses to create more fundamental change.
We can challenge the conventional idea that profit is an end in itself. We can grapple with the complexities of realigning business models to include social outcomes. Then we can get to work in changing our own organisations to start giving business a genuinely deserved reputation as an agent for positive change.
Cheers to that!
*Living in poverty is defined as having ‘relative low income’, that is, people living in households with income below 60 per cent of the median in that year, after housing costs.
Executive MBA (2019)