By Ryan Cabinte
The paper argues that focusing on profit—the single bottom line—is a more efficient and sustainable way to promote social benefit than emerging frameworks like the triple bottom line, corporate social responsibility, and Creating Shared Value. Altman and Berman say the latter are organizational distractions whose claimed benefits are too idiosyncratic to support principled business practice. Here’s the paper’s abstract:
With a long enough time horizon, many social benefits created by the operations of for-profit companies can generate private benefits for the companies themselves. As a result, executives planning for the long term create social benefits in the most efficient way when they target a single bottom line—profit. Though calculating the private value of social initiatives under a single bottom line requires the use of estimates and probabilities, this approach offers greater efficiency in decisionmaking and more sustainable social benefits than schemes such as corporate social responsibility, creating shared value, and double- or triple-bottom lines.
You should read the entire paper itself, as opposed to the NYT synopsis. I think it is pretty sound economic theory, and it is a line of argument sustainable business advocates need to take seriously. It’s not far off from what many, like Dan Esty, are saying these days, at least in spirit: Avoid high-cost, low-return initiatives. Stay close to your core competencies and be focused in your use of resources. Be rigorous in your cost-benefit analysis. Don’t do random virtuous things out of a sense of completeness.
But we should be careful not to fall in love with economic models, nor mistake them for real life. My issue with Altman and Berman’s paper is that, like the proverbial economist stranded on a desert island, it defines away the real-world issue that 3BL, CSR, and CSV try to address.
Take a look at the abstract again. As long as everyone thinks long term, managers can be assured that the relevant information about social value will be effectively captured in the market price.
Well, that’s the point of sustainability: market actors tend not to think long term. The whole reason to experiment with alternative frameworks for understanding firm value is that so many market actors, as a cognitive and behavioral matter, discount the future.
The tendency to discount future value is reflected in the market price today. It’s why we don’t live in a sustainable world, even though we already live in a single bottom line world. It’s not that helpful to define this problem away. Firms can’t simply flip a switch and become long-term oriented. Firms can’t estimate long-term value if it is invisible to them.
(This is all not to mention all of the other reasons social value might be distorted in the market price—e.g., misallocated subsidies, regulatory capture, government ineptitude, slow or diffuse feedback loops, public goods problems, and, of course, systematic undervaluation of natural capital. . .)
CSR, CSV, and 3BL are pathways a firm can use to move to a long-term mentality in a short-term market culture. They are firm-level innovations to account for the fact that market price doesn’t signal everything a firm might want to know about the net value it creates. It would be great if all firms were long-term oriented, but they are not. Until then, there’s good reason to supplement price information by measuring and generating social value directly, if that’s what your mission calls for.
Granted, it’s early in the innovation adoption curve. There’s going to be some wasted effort and some rough trials in bringing long-term thinking to wider practice. Yet we should also be cautious about clinging to already culpable models that abet our blindness. We’ve already been told that everything we need to know is derivable from today’s market price. It’s not working as well as we need it to.
Ryan Cabinte, JD, MBA, counsels mission-driven organizations and teaches at the Presidio Graduate School.