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Profit and purpose

11 December 2017

A list of vague desirables is not enough

he traditional view in business is that profit and purpose are at odds with each other – that doing good will cost the company money. It was a surprise therefore to find private equity firm Bain Capital taking a 50% stake in an American shoe retailing company called Toms.

What makes this latter business different from the crowd is that it gives a free pair of shoes to a child in need for every pair it sells. This could not be further from the shareholder value approach to doing business, but the model seems to work.

Encouraged by this success, the company has already extended the ‘one for one’ idea into other areas. Every pair of sunglasses sold is matched by help to give sight to a person in need and for each bag of coffee beans sold the company supplies clean water to a household for a week.

The ‘one for one’ idea has its critics but it gets round the problem which besets most corporate initiatives in sustainability and social responsibility – namely that they are easily dismissed as a PR tool, designed to put a gloss on the company to enable it to sell more. This model is seen as more than marketing because the delivered benefit to the under privileged is visible and tangible.

Bain’s investment is driven by a belief that for the emerging generation the key to profit is purpose and insight, which flies in the face of conventional business thinking. It sees in Toms’ success evidence of a fundamental change in attitude whereby buyers would rather do good with their purchases than give directly to charity, and will pay more than they would otherwise as part of this policy.

According to surveys, ‘millennials’ want their purchase to have a purpose. As many as 72% believe they can make a positive environmental and social impact through their purchases and 51% claim to check the packaging before buying to reassure themselves about the social and environmental issues. However, they show a reluctance to delve into the detail and thus any sustainability message from a company needs to be clear and easy to grasp.

If that can be achieved, it unlocks the door to growth in sales. A recent survey found that 30% of US consumers plan to increase their purchases from socially responsible companies in the next year. Meanwhile, only 18% plan to increase charitable giving. A separate study confirmed that consumers place a premium value on products from socially responsible organisations. Some 55% of global consumers said they would pay more for products from companies that are committed to positive social and environmental impact.

Bain Capital may believe it has spotted a change in behaviour, which means sustainability policies have a direct impact on the bottom line, but most businesses remain far from convinced. They may have moved on from the position where the majority of executives said pollution was okay if it improved profitability, however, the management consultants McKinsey concluded that many companies with sustainability policies do not integrate these into the mainstream of their thinking. As a consequence, they struggle to understand the link between these policies and value creation.

In large companies they have a point. McKinsey found that where there are many sustainability initiatives at local level, there is frequently no company-wide perspective on what these are meant to achieve. This results in a fragmented effort, unable to create much value either for the company or for society.

The consultants suggest management should approach sustainability with the same rigour that is applied to other areas of business. It should agree on where to focus and it should define what it seeks to achieve. It should ensure it has no more than five priorities, which are closely aligned to what matters most for the company, and these should be turned into a set of measurable goals.

The aim is for companies to identify the sustainability issues with the greatest long-term potential for the business and thus to create a systematic agenda. In other words it is no longer enough simply to compile a laundry list of vague desirables.

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