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Creating a new generation of data to solve social problems.

For the second time in as many months, I’m disappointed in the Wall Street Journal’s choice to publish tired opinions and outdated views of corporate social responsibility. 

Roughly a month ago, WSJ’s op-ed by Chrystia Freeland drew a faulty link between social investments and epic disasters as it criticized BP and Goldman Sachs (read my counter-opinion).  Now, WSJ’s column by Professor Aneel Karnani sings an old familiar song first hummed by Milton Friedman.  The tune goes: “the business of business is business,” and Dr. Karnani claims that businesses will - no, must - choose profit over purpose.  He states first that the intersections of profit and social good are few and far between and next that shareholders’ demand for return will always win out, often at the expense of doing good or at least doing less bad.  What’s more, the professor offers government regulation as the best way to prevent profit-hungry companies from simply running amuck.  With all due respect, each of these points is wrong. 

The intersection of profit and social good is widening…and fast

Dr. Karnani goes so far as to say, “…in most cases, doing what’s best for society means sacrificing profits.  …(if this weren’t true), problems would have been solved long ago by companies seeking to maximize their profits.”  I’m aghast.  Had the prominent business leaders and innovators of our time adopted this pessimistic, “what can be done has been done” line of thinking 100 years ago, we’d yet today be without efficient transportation, medical miracles, and many forms of technology.   In my own backyard, grocers avoided the dangerous and presumably unprofitable urban neighborhoods on Chicago’s south side for decades.  Now, Walmart has invested thousands if not millions in a multi-year fight to open a south side store and solve this so-called food desert.  Regardless of the stated social intention, it’s safe to say profits are on the line and they’ll bring social change with them.  Tough social problem meets innovative and profitable corporate strategy.

Dr. Karnani cites the obvious examples of healthy foods and fuel-efficient cars as socially relevant goods that are also commercially viable, but he stops there.  He fails to recognize that the opportunity for companies to do well by doing good goes far beyond trends in consumer packaged goods and rising gas prices.  Profitable business opportunities exist in many types of product innovation as well as in new markets, new uses of human capital, and new partnerships and relationships. 

We’ve arrived:  the next generation of shareholders is here

According to Dr. Karnani, investing in common good makes arbitrary use of shareholders’ money and will result in a manager’s removal from her fiduciary post.  In this argument, he ignores the growing popularity of socially responsible funds and the fact that inflows to these funds remained positive even in the worst of the economic downturn when investors were pulling out of stock funds by the masses1.  While the pool of socially responsible investments still pales in comparison to the general market, I would argue that the days of single-minded investors with no interest in the social and environmental footprint of their portfolio are over.  I, along with many others, predict that this trend will continue particularly as socially-minded Gen Yers and Millenials take hold as consumers, employees, and investors, a change that is inevitable and fast-approaching.

Regulation is punishment; social strategy is opportunity

According to Dr. Karnani, government regulation is the best solution despite the fact that it’s often overburdening to corporations and can reduce positive social outcomes.  In my opinion, regulation is as necessary as speed limits:  it prevents disaster and undue harm, but does nothing to create leaders on the road and certainly doesn’t pave the path of least resistance or greatest opportunity.  Regulation has its place; but it is up to the socially-minded public to put its money where its mouth is, to investors who can redefine return, and to business leaders to find and capitalize on the business opportunities that improve our world while sustaining our companies.
 
I look forward to WSJ’s decision to publish a forward-looking, visionary and optimistic view of the new era of customers, shareholders, executives and corporations.  My team and my corporate clients at Mission Measurement would be happy to author it.

1: 'Socially responsibile investments show sustained growth.' David Pitt, Associated Press.  August 8, 2010.