Profit vs. Society

The Connecting Leader Series (4 of 10). This article is adapted from the book The Connecting Leader: In the Age of Hyper-transparency, Interconnectivity and Media anarchy, How Corporate Leaders Connect Business with Society. In this piece, Alberto explores the relationship that companies have with Profit and to what extent it determines the type of Social Contract that companies adopt.

Profit vs. Society

In the aftermath of the financial crisis and in response to the intense scrutiny coming from society, some business initiated a process to repair the damage caused by the excesses of the previous years. Not all companies took the same approach to restoring trust; a few adopted a long-term perspective, some went into hiding and many continued being dominated by short-term financial goals.

The last two categories, companies that were mainly driven by short-term goals and those that tried to be invisible, didn’t fully grasp what it took to succeed in the New Normal. The invisible type, motivated to avert public scrutiny by avoiding the limelight, failed to obtain stakeholder support when they needed it.

The short-term type focused on restoring trust and building their reputation in the old-fashioned way, treating reputation as a construct. While previously, it was perfectly normal for companies to use spin and manipulative “reputation management” strategies to attract and engage stakeholders, in the New Normal, these techniques have become of very little use to navigate and recover from a crisis or restore the company’s trust. The opposite is true: the more a company or individual uses these techniques, the more stakeholders disengage and disconnect from the company. Society is simply less credulous.

Contrast the above with the companies that have taken the long-term view, such as Apple, Unilever and Patagonia. These are what we call Authentic businesses, companies that have been operating under the same values and purpose from the outset. Most of the time, these are trustworthy organisations whose identity is well-defined and embodied by its employees, and that live by a strong set of clear and positive values to achieve a positive relationship with society. These companies make the Social Contract the starting point of their existence, they embed distinctive ethical values and practices in the identity of the organisation, and these guide the engagement strategies with all stakeholders.

These are the companies that understand that a good reputation is an outcome that is formed by being genuine, doing what you say you are going to do and owning up to the mistakes when these happen. Fundamentally, this is the authentic engagement that society demands from business today. Companies that have adopted the above approach are readier to face the challenges of the New Normal.

An important revelation that emerged when studying the authentic business is that the key factor that determines the Social Contract is the relationship that the company has with Profit. This relationship (with profit) impacts the identity of the organisation and the nature of the Social Contract. Using this lens, we identified three types of companies: Profit First, Profit & Society and Society First.

Profit First companies are purpose-led organisations driven by shareholder value creation while also making a significant contribution to society. Consider Apple—it has a very distinctive identity, built on innovation, design and technology that drives progress for consumers and society.

Exemplifying the Profit & Society category, we find Unilever. The company stands as a model of sustainability, combined with profit and shareholder maximisation, and has become a global reference for other companies that strive to integrate sustainable processes at every step of the value chain.

In the third category, the Society First companies put society’s interests before profits and report across a range of social and sustainability parameters. Patagonia is devoted to developing highly sustainable and durable products that don’t damage the planet.

While each of these businesses operates with a different relationship to profit, they are all highly successful in their own right. Aside from their strong performance, what do these and other authentic companies have in common? These organisations have connected their values and objectives to their purpose in society and have been actively taking a stand on issues that matter to their constituents. They have combined Authenticity with the desire to Connect to a wide and complex web of stakeholders and issues.

As a result, these companies have experienced less disruption, less intrusion and fewer obstacles from stakeholders, including regulators and investors. These are the businesses that have mastered the art of connecting all of the pieces to create corporate value and achieve a harmonious balance across all stakeholders. These are businesses that have understood how to be relevant in the twenty-first century.

The Connecting Leader is available in paperback and kindle on Amazon.