Profit vs. Progress
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How can companies balance the need to make a profit with a desire to transform society for the better?
In August of 2018, Tesla co-founder and CEO Elon Musk made a shocking announcement. After years of struggling to meet production goals, he was considering taking Tesla, a publicly traded, multibillion-dollar company off of the stock market.
Am considering taking Tesla private at $420. Funding secured.— Elon Musk (@elonmusk) August 7, 2018
While this announcement made headlines for a variety of reasons, few stories chose to examine one of the key reasons Musk fired off the tweet in the first place: his frustration over a clash of priorities: profits vs. progress. Investors wanted to see a return on their investment; Musk wanted to revolutionize the world by creating an entire sustainable, green energy ecosystem.
This one example is a microcosm of what may become one of the most important struggles for entrepreneurs, innovators, executives, and dreamers in the 21st century and beyond: as companies grow, they often raise capital to fund big ambitions from investors who want to see a return, but these same investors may not be patient enough to stick around for the company’s long-term vision for transformational progress.
“Company concerns about whether to be more responsive to consumers and the public good or meet shareholders’ expectations is an age-old problem in the marketplace. And many organizations continue to wrestle with this dilemma today,” says Tom Hayashi, Ph.D., Saybrook University’s program director for the Department of Leadership & Management. “Humanistic scholar-practitioners in leadership, management, and organization studies research and promote finding the appropriate business model that can drive innovation not just for the sake of driving profit, but also to drive innovation that is in line with the company’s vision and ethical values . . . in other words profit and progress”
Exploring Corporate Social Responsibility
Corporate Social Responsibility (CSR) as a leadership framework recognizes and commits to integrating business models so that the organizational mission, vision, priorities, and strategies maximize positive impact on society and the environment.
The concept of Corporate Social Responsibility centers around the notion that companies should be held accountable for the social and environmental concerns of the public at large; even prioritizing these concerns ahead a company’s shareholders and investors. Therefore, according to Dr. Hayashi, while it is never easy for organizational members, “doing good” under the right leadership and organization design is absolutely possible, and worthy of all stakeholders to rise to the challenge.
While this may appear to neglect those willing to put money into the company—who may see diminished returns in the short-term—in favor of people who have no connection to an organization, CSR can ultimately enhance a company’s value, and shareholder profits, in the long-term. This is because it allows a company to connect with consumers at a level deeper than any product or service they may offer by exemplifying a shared set of morals, values, and world perspective.
“There are economists who look at social behavior, consumer behavior in particular, and believe consumers are not just making choices based on the monetary cost to them,” Dr. Hayashi says. “There’s also becoming this motivation for consumers to make purchasing decisions based on what I call the Dual Bottom Line. This is to say see that what is good for the environment or our common welfare is ultimately also good for themselves as individuals.”
One popular example of leveraging this type of consumer behavior can be seen with TOMS Shoes, a company dedicated to providing a child in need with a pair of shoes for every pair that is purchased from them by anyone, anywhere. Since 2006, it has donated more than 60 million pairs of shoes to children in more than 70 countries across the world, according to their website. Furthermore, the company has expanded beyond providing shoes and now also strives to enhance water quality, support safe birth services, and assist those with impaired vision or who have completely lost their eyesight.
While TOMS Shoes is doing beneficial work, the company is far from a mega-corporation, one capable of truly innovating the way our world lives on a day-to-day basis. But the model reflects a potential generational shift in how consumers will prioritize the companies they engage with moving forward. One of the most urgent issues consumers may identify with is climate change.
“There has been a longstanding environmental movement in the United States,” Joel Federman, Ph.D., chair of Saybrook’s Department of Transformative Social Change, says. “Currently, the emphasis of the movement is on addressing climate change in general, climate justice issues, and a specific focus on the development of oil pipelines, such as the Dakota Access Pipeline, that both do environmental damage and infringe on Native American rights. This modern-day movement is fueled by access to social media that has enabled tremendous support for these issues and for recognition of the science showing the significant impact of global warming and climate change.”
Dr. Federman adds that large-scale issues such as these will also require activism and policy development to push society in a more sustainable direction. At the end of the day, companies interested in making money would benefit from aligning themselves with increasingly socially conscious consumer demands. It will be important for organizations to be ready and willing to adjust their way of doing business or be left behind.
“The younger generation is more aware, accepting, and alarmed by global warming,” says Dr. Hayashi, adding that this generational shift in thinking includes both sides of the political spectrum. “This is important for companies to understand and to highlight, even reconsidering their marketing approaches and their product development approaches to address the way younger consumers are making their decisions. It is going to be a big issue that is going to affect companies across the board and they will have to have a response.”
Rethinking Business Practices in the 21st Century
When examining a singular issue, such as climate change, through the lens of CSR, what options can companies consider in an effort to align their bottom line with the public good?
According to the most recent data available from the Environmental Protection Agency, 14 percent of all global greenhouse gas emissions emanate from transportation and “almost all of the world’s transportation energy comes from petroleum-based fuels, largely gasoline and diesel.” In 2018, there were more than 80 million automobiles sold worldwide. Therefore, we will consider options specific to the automotive industry and energy sector.
In “The Truth About CSR,” published in the 2015 issue of the Harvard Business Review (HBR), three “theaters of practice” were identified for companies seeking to engage in CSR.
- Focusing on philanthropy
A company focused on this theater could set aside a portion of their profits with the intent of donating money to nonprofit organizations, like Ceres, that actively work to address climate change. This allows them to maintain profitability while also aligning themselves with eco-friendly organizations. Both ExxonMobil and Chevron made Fortune Magazine’s top 20 list of philanthropic companies in 2016. They have also invested vast amounts of money into research and development in an effort to begin easing reliance on petroleum-based fuels, but this fits better into our next category.
- Improving operational effectiveness
This theater requires a company to streamline current business practices through sustainability initiatives or investments.
For example, Ford Motor Company has developed an Ecoboost engine in an effort to reduce emissions, invested $11 billion with the goal of offering 40 new electric vehicle models by 2022, and required all American dealerships to now use wind sail and solar systems as their primary energy source.
One step further than philanthropy, this theater may connect more with consumers because a company is demonstrating a willingness to put their own money to work for a goal that impacts society at large for the better. At the same time, it demonstrates to investors that the company is making sound investments that have the potential to return profits to shareholders down the road.
- Transforming the business model
This theater is the most intriguing, the most impactful, and the most difficult to achieve for companies seeking both profit and progress. As stated in HBR:
Programs in this theater create new forms of business specifically to address social or environmental challenges. Improved business performance—a requirement of initiatives in this theater—is predicated on achieving social or environmental results.
Tesla fits this model. The company is attempting to transform both the auto industry and energy sector simultaneously. While some people may only connect the company to the first high-performance electric sports car to enter the market, the Tesla Roadster, the company has also forced the public to reimagine what car dealerships, service centers, and gas stations look like. While the bold concepts have drawn billions of dollars in investment, Tesla has still yet to make a profit for investors more than eight years after its Initial Public Offering (IPO).
Tomorrow’s Businesses Will Need Skillful Leaders
Each of the companies discussed thus far—from TOMS to Tesla—have decision-makers at the top with the power to drive their company and humanity forward, if they so choose.
So it is important to note the importance of skillful leadership, whether at a company seeking incremental change or one seeking revolutionary progress. In the case of Tesla, some may even point to the CEO as a large part of the company’s struggle to make a profit thus far. (Musk stepped down as Chairman following his Tweet and an ensuing lawsuit by the S.E.C.).
Dr. Hayashi believes that graduate-level leadership programs, like those offered through Saybrook University, can help prepare tomorrow’s leaders for the challenges they will encounter within various organizations.
“One of the values we bring to our students is humanistic scholarship and practices,” Dr. Hayashi says. “We have a number of faculty working in various industries and as consultants and advisors. So they definitely have their ear to the ground and are part of the global trends in a variety of sectors including healthcare, technology, education, and entrepreneurialism.”
The online M.A. and Ph.D. programs provide students a place to have reflective, thoughtful conversations about issues of the present and in the future that organizations will need to be aware of and be prepared to respond to, like environmental sustainability, the evolution of technology, and mass migration. By exploring issues like these in an academic setting and with an engaged community that promotes quality conversation, Dr. Hayashi hopes to spark creative solutions that leaders currently stuck in the day-to-day grind of their business operations simply do not have the time to ponder.
He also hopes to teach students that the questions an organization faces are never as simple as “profits or progress?”
“We firmly believe that there can be innovation, and there can be profit, and there can also be people who, as employees, feel they are engaged in a mission and don’t feel as if they are just another employee of a company,” Dr. Hayashi says. “To that extent, we’re interested in helping the next generation of leaders and managers of organizations begin engaging in creative solutions that can set the bar high and do well by doing good.”
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