Can businesses maximize both their profits and the social
benefits they create? Or, do economic
and social profits compete with one another?
100+ years of literature and lore have trained us to believe that
businesses can’t optimize both their profits and their social benefits. From Upton Sinclair (e.g., The Jungle) and Charles Dickens (A Christmas Story), through Erin Brockovich and The Informant!, we have heard of countless examples of horrors that
can be caused by corporate greed and money-grubbing.
However, a number of people seem to believe that this
paradigm can be broken.
A few weeks ago,
I attended a Harvard Business School of New
York seminar called Green
Private Equity: Investing in Our Future that discussed
Private Equity’s involvement in encouraging sustainability. The session was led by Diana Glassman of EBG
Capital and the panel included one of McKinsey’s better-known former
partners, Carter
Bales.
I had known Carter when he was one of the top partners at
McKinsey’s New York
office. I reconnected with him recently,
when I learned that he had started a
PE group targeted on sustainability and energy-efficiency issues called
NewWorld Capital Group. During the
talk, Carter referred to the area he works in as “the Virtuous Quadrant.” He seemed to believe that he could generate
above-average returns, by investing in and supporting socially-positive
businesses.
I came home and researched the term “virtuous quadrant.” I was pleased to see that
the first mention I could find was from a scientific paper on Land Use that was
written in 1996 by another old friend of mine from
McKinsey, Dr. Alistair (Ali) M. Hanna.
He used the term so casually that I suspect it may have been a term of
art within at least the New York
office of McKinsey for some time, before this.
I’ve
now found many mentions of the term, and a number of other articles and papers
that support the thesis that lies behind it.
For instance, two Swiss professors, Andreas Georg Scherer and Guido
Palazzo, wrote a paper last September that contained references to around two
hundred studies that support the view that “Many business firms have started to
assume social and political responsibilities that go beyond legal requirements
and fill the regulatory vacuum in global governance.” (They don’t want links to their draft—I
assume because it has not been published, yet.)
The Environmental Defense Fund has been
spearheading an effort to get private equity firms to integrate CSR issues into
their investment practices. Our friend Greg Andeck at EDF
sent me a recent New York Times article about how
well KKR had done by encouraging its portfolio companies to set sustainability
goals and Carter’s fund seems to be moving ahead well. So, perhaps we are at a tipping point in how
business people think about their role in society—and in what society expects
and demands from businesses? If so, I
hope that CSRHUB can play a role in revealing this progress, through the
ratings we generate and the information we expose.
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