It’s social movements that create market expectations

I have previously written about the provocative defence of the single bottom line by Daniel Altman and Jonathan Berman. Their argument, both stimulating and challenging, is that the most efficient way for companies to generate social benefits is to focus on the achievement of profits. For someone who has actively supported the move from shareholder value to shared value this was a timely wake-up call.

My initial response was to argue that whilst the Altman/Berman proposition had merit it depended, as they emphasised, on businesses taking ‘a long enough time horizon’. Unfortunately there exists today unprecedented pressure to satisfy short-term expectations. Too often the organisational structures and incentives of corporate life, from risk management to remuneration, remain focused on immediate success. Economic downturn and bear stock markets accentuate this inclination. The advantage of corporate social responsibility strategies, in their diverse manifestations, is that they require companies to consider and report upon the long-term sustainability of the bottom-line.

I foreshadowed that I had a second reservation about depending upon the private value of social initiatives to create community benefits. It relates to the important qualification, mentioned only in passing by the authors, that the market is a creature of society. Its roles and expectations change over time.

Altman and Berman agree that the single bottom line is only effective as a driver of social benefit if public and collective action has created ‘the equilibria in markets’ that address evidence of market failure and the societal cost of negative externalities. “Putting these influences to one side”, Altman and Berman prosecute their case with vigor. It seems to me that the manner in which this significant assertion is quickly acknowledged and then set aside represents an intellectual sleight of hand.

The state and its citizens establish regulatory constraints and social mores, which frame the operations of the market. These, responsible businesses now recognise, set the basis for their ‘licence to operate’.

Governments, through legislation, taxation and subsidy, create requirements and introduce incentives to the market: everything from occupational health and product safety to imposing capital requirements on business or setting a price on carbon.

Societies, often led by not-for-profit advocacy groups, intervene in the political process to bring about such market expectations. Indeed this is the traditional manner in which scale is created in the community sector. The private sector has mergers: the non-profit sector has movements. From civil rights and wildlife protection to conservation and child labour, it is social movements – loose, flexible, evolving partnerships – which create new market dynamics.

It is this participatory democracy, increasingly underpinned by social media, which creates change. Yes, business doing well makes good business sense, but only because public expectations have created influential networks of socially responsible investors and ethical consumers. The bottom-line benefits of reputational integrity are greater because of the manner in which the market has evolved. Societal expectations, built in developed economies, are now extended along the global supply chain: consumers no longer believe that the imperatives of fair trade and human rights stop at the national border.

Directly, or through influencing government policy, it is the not-for-profit sector that has created the rising economic value of social and environmental responsibility to which business responds. It’s a point worthy of more than a desultory genuflection.