Profits, Principles & Motives

I’m getting to it a bit late, but here’s a really interesting editorial from the Financial Times from about a month ago:
Profitable principles

The gist of the editorial is this: companies that undertake “socially responsible” initiatives almost never do so for noble, principled reasons. They do it because they think it will contribute, in some way, to the bottom line. That’s OK, says the FT, because “…as long as they produce results, there is nothing wrong with these self-interested motives.” The obvious follow-up question is this: what about when such efforts don’t produce results? The FT’s view on this is unclear. So, what should we think of self-interested corporate behaviour of the kind that seems socially responsible, but turns out not to have a positive impact?

To make any headway, we need to distinguish between two kinds of cases. In one kind of case, a corporate initiative that seems both socially responsible and profitable turns out not to have a positive social impact after all. Such cases are not necessarily cause for condemnation. Sometimes, things don’t turn out as planned, and decisions need to be judged based on the information the decision-makers had at the time the decision was made. Sometimes perfectly good decisions lead to bad outcomes. In a second kind of case, a corporate initiative that seems both socially responsible and profitable turns out never to have been intended to have a positive social impact. (This category includes many instances of greenwashing.) Clearly, we should be more worried about these cases. In these cases, the (normally justifiable) pursuit of profits is carried out by unethical means, namely by deceiving the public (and the market) about just what it is that they’re buying.

The other thing I wanted to point out about this FT editorial is that it helpfully reminds readers that some social problems are well-suited to remediation through market mechanisms (perhaps driven by conscience-driven consumerism), and others are simply best left to careful government regulation:

Voluntary standards will leave serious gaps. Consumer outrage has ensured that fair trade coffee is widely available, but seems to have made little impact on pollution from aeroplanes. It is hard to see how it could.
If customers are willing to pay for greener products produced to higher standards, then companies will respond. Such market demands, though, can be whimsical. Market leaders such as Nike will face strong incentives to do business ethically, but consumers put little pressure on smaller firms in anonymous sectors. We demand ethical trainers, but not yet ethical staplers or ballpoint pens.

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