August 7, 2022

To Be Good Citizens, Report Says, Companies Should Just Focus on Bottom Line

“Using a single bottom line allows companies to create social benefits in the most efficient way while continuing to maximize profits,” said Daniel Altman, a consultant at the firm, Dalberg Global Development Advisors.

He and his co-author, Jonathan Berman, also a Dalberg consultant, contend in particular that moves by companies to adopt double and triple bottom lines, which add to profit the measures of a company’s social and environmental impact to evaluate performance, are distractions.

“The real social value comes overwhelmingly from what companies do through their core business, the skills and supply chains built up around them, and then the revenue that comes into government as a result of their profitability,” Mr. Berman said.

Companies spent an estimated $14.1 billion on philanthropy in 2009, according to Giving USA, the annual report on giving produced by fund-raising consultants. Companies typically do not report how much they spend on corporate social responsibility, which is often part of the overall marketing budget.

The paper, which is being published by the Stern School of Business at New York University, where Mr. Altman is an adjunct professor, coincides with the debate over how corporations can be responsible global citizens.

Many wealthy business leaders recently have sought to emphasize the social impact that companies have, especially through jobs. Charles T. Munger, Warren E. Buffett’s right-hand man at Berkshire Hathaway, for instance, once said he thought “Costco does more for civilization than the Rockefeller Foundation.”

And Carlos Slim Helú, the Mexican billionaire, has said he believes his vast telecommunications and infrastructure businesses do more to advance social welfare through their creation of jobs than his philanthropy. “Of course, business cannot replace philanthropy,” he said in an interview last spring with The New York Times. “But giving people work so they can help themselves is an important contribution to society.”

At the same time, a growing number of states — including Michigan, Illinois and Utah — have approved the establishment of low-profit, limited liability, or LC3, companies that are run like normal businesses except that making money is secondary to the goal of delivering social benefits.

Most important, the structure allows such business to tap into traditional capital markets and attract private investors, which nonprofits cannot do.

Mr. Altman noted that such government encouragement of corporate social activism was necessary sometimes, when market forces simply did not address a needed public service.

The paper emphasizes that companies that work for long-term profitability, in contrast to managing their business for quarterly performance, often generate public benefits as a byproduct. Mr. Berman cited Cargill as an example, which for decades has been giving cotton farmers in Africa seeds to grow foods.

The program creates two crop cycles, which is better for the soil, and over time, helps farmers affiliated with the company sell different crops.

Another example he cited was Exxon Mobil, which incorporates safety into its decisions about new exploration. Mr. Berman said the company did so because it lowered costs and thus enhanced profitability.

“Again and again, we’ve seen the most efficient way to create social benefits is by looking at how those benefits redound to the bottom line,” said Mr. Altman, who wrote economic commentary and editorials for The Times previously in his career.

In contrast, the paper notes that traditional corporate social responsibility programs and corporate philanthropy aim primarily to produce a social benefit and that any profits that may materialize are byproducts.

But neither Mr. Berman nor Mr. Altman argues for ending these programs. “I think they should simply be subjected to the same level of rigor as all the other investments companies make with the aim of improving profitability,” Mr. Altman said.

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