Wednesday, December 7, 2011

A trade-off?

A few days ago, I spoke at a conference on impact investing. I was invited to speak on the topic “Trade-offs between profit and social impact?” from an ethical perspective. The deeper I got into the question, the more I discovered how interesting and challenging it was to provide an adequate answer to. Indeed, there are several answers to it. The first and simplest one is: “Yes, of course!” If a corporation doesn’t do anything else but maximizing profits, it doesn’t bother about the social impact of its activities. The “Invisible hand” of the market will turn private vices into public goods. Spending money for “corporate social responsibility” is an undue sacrifice of profits. All followers of the Friedman-tradition will agree on that answer.
I think, however, that the title of my presentation was set by those who invited me to challenge this tradition. 

I discovered that you can look at the question from a different perspective and say: “No! There is no trade-off between profit and social impact.” Profit is the result of a specific impact of money in a creative and productive socio-economic environment.  No profit has ever been made without any social impact at all. So the question regarding a trade-off is not the right one. The right question is the one referring to the quality of the social impact: “Is profit the result of a fair process of value creation, and a fair process of distribution of benefits?”

The trade-off question leads me to the moral category of “fairness”. This is not just because I’m an ethicist. It is because there is no way around the fact that value creation is a process of social interaction. In a business environment, this process is facilitated by the investment of specific resources such as financial capital, human capital, natural resources etc. Different stakeholders represent different resources and potentials. 

Thus, coming back to the initial “trade-off-question” we need to acknowledge that there may be nevertheless be a trade-off between financial profit and social benefit. But we realize that the meaning of our question has shifted away from a perspective of narrow financial interest to a broader perspective of shared value creation. 

Financial profit is just one particular form of benefit that emerges from shared value creation. So: “Yes, there may be trade-offs between different forms of benefit”. But one thing is clear: financial profit at the cost of providers of specific and success-critical resources is not the result of value creation, but of unfair value redistribution. We have seen enough of that recently. 

Financial profit in the context of shared value creation and a fair distribution of benefits is a fantastic thing. The better we understand the signs of our time, the better off we will be in the future.  

Christoph Weber-Berg

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