Why Arianna Huffington says there's more to business than profit

Corporate leaders have banded together to try and get companies to put people and planet alongside their goal of profit. But some say the pure profit model shouldn't be abandoned.

Pursuit of short-term profit not working anymore, HuffPost chief says

Huffington Post creator Arianna Huffington and member of The B Team says the pursuit of short-term profit at the exclusion of everything else isn't working for anyone. (Paul Chiasson/Canadian Press)

An international conglomeration of corporate leaders that has banded together recently kicked off a new venture — to deliver a so-called 'Plan B' that gets companies to put people and planet alongside their goal of profit.

Spearheaded by British billionaire Richard Branson and former Puma CEO Jochen Zeitz, The "B Team" believe that for far too long, businesses, in pursuit of short term gain, have not accounted for the costs of their activities and negative impacts on society and the environment. Instead, they need to focus on the long term, and the consequences of their actions.

"Plan A — the pursuit of short-term profit at the exclusion of everything else — isn't working for anyone," Arianna Huffington, CEO of Huffington Post Media Group and a member of The B Team, told CBC News via email.

"It's not working for businesses long-term sustainability, and it's not working for employees' well-being. And at a time when so many governments are gridlocked and paralyzed and unable or unwilling to pursue big, bold, far-sighted goals, the private sector has a responsibility and a unique opportunity to become a catalyst for fundamental change."

Businesses have responsibilities "beyond the bottom line," and need to be "a driving force for social and environmental benefit in addition to financial gain," she said.

Nothing inherently wrong with capitalism

There is nothing "inherently wrong with capitalism," she said, adding that businesses should not be blamed for society's ills — although that seems to contradict the mission statement which states "the overwhelming conclusion we’ve reached is that businesses have been a major contributor to the problems."

Instead, Huffington said businesses have responsibilities beyond the bottom line.

But Daniel Altman, adjunct associate professor for economics at New York University's Stern School of Business, said they have it half right. Businesses should be thinking long-term but by eschewing the pure for- profit motive, The B Team is making a "tremendous error, he said.

NYU Professor Daniel Altman says abandoning the pure for-profit model would be a "huge mistake." (NYU)

"I look at these worthy and wealthy individuals making these statements and I ask how would they react if they were at earlier points in their career," said Altman told CBC News. "And I think at an earlier point in their career they would have been more connected to the virtue of the profit motive."

'Huge mistake' to abandon pure for-profit model

In a recent article for Foreign Policy magazine, Altman laid out the case why he thinks abandoning the pure for-profit model would be a "huge mistake."

Altman wrote that it's "naive" to believe that the private sector only seeks short-term profits. In fact, companies driven purely by the pure for- profit model and incorporate a "long time horizon" plan will make more social and environmental investments, he said.

This means putting money into things like training workers, bolstering communities and protecting ecosystems will pay off for companies in the long run by creating a return that includes a stronger labour pool and wealthier consumer base, he wrote.

"I think the profit motive works just fine for protecting society, the environment and doing business in a sustainable way, as long as we do take that long time horizon," Altman said in a phone interview with CBC News.

"Companies that take a long time horizon and focus on profit will do more social investment and environmental investment because they will see how that pays back to them in the long term."

He said The B Team gives two contradictory points — that the profit motive doesn't work anymore while at  same time saying that in the long term, what's good for companies, is good for society and the planet.

'Profit motive is enough'

"We should encourage companies to continue doing what they do well, focussing on profit, but in the long term. I think that what the B Team is saying is internally contradictory because in the long term what's good for companies is good for people and the planet. The profit motive is enough."

Companies that start shifting their focus to other objectives other than profit and loss may sacrifice clarity and transparency for shareholders and cause frictions in financial markets, he said.

Aneel Karnani, an associate professor of strategy at the University of Michigan's Stephen M. Ross School of Business, said the Plan B approach may be good at dealing with small problems, but not the big issues facing the world.

"The chance of us stopping climate change through voluntary action of a few companies is zero. It's just not going to happen," he said.

The responsibility for such large-scale programs should fall on the government's shoulders, not companies.

"In my view, companies should make profits, and people should do good things," said Karnani, whose piece titled The Case Against Corporate Social Responsibility published in the Wall Street Journal  last year drew some criticism.

He also pointed out that companies have responsibilities to their shareholders.

"How does the manager decide that he should sacrifice profits — not his own profits — but those of the shareholders? The company doesn't belong to the CEO. The company belongs to shareholders and they can get another CEO."

Shareholders asking for more than financial returns

But Kathy Calvin, CEO of the United Nations Foundation and B Team member, said more and more shareholders are asking companies to look at a broader definition of returns.

"They're not just looking at the financial return. And in fact are arguing increasingly that failure to look at those other returns will be a drag on financial returns," Calvin told CBC News in a phone interview.

"So if you're not paying attention to the impact to climate change, or your use of natural resources long term, that will have a damaging effect on the financial returns of the company," she said.

"We're hearing more and more shareholders saying that a higher level of attention should be paid on that broader set of questions and [they] think if they do, their financial returns will actually be improved."