Marketing and the social good: accounting profits and economic profits

US corporate profits 1995-2012

In their September 2013 issue, Harvard Business Review ran an article titled, “Innovating for Shared Value.”  The article lays out a five-piece framework for how companies can “deliver both social benefit and business value.” It also references a HBR piece from January this year, “Creating Shared Value,” that argues the next competitive frontier for companies is managing to create social benefit and business value simultaneously.

I’m happy that HBR is giving this concept some ink, and laying out a model for how companies can start thinking about business + social. Happy, but also irked.

I’m irked because, to me, this shouldn’t be presented as “innovating” and “competitive.” It should be business as usual, starting in business school if not sooner. The fact that it hasn’t been is the root of many problems I can see, especially environmental problems from wasteful and unsustainable practices.

Early in my MBA classes, we encountered the distinction between accounting profits and economic profits. Accounting profits are the dollars a business gains or loses on the books. Economic profits are the positive and negative impacts of their business on the community as a whole.

Case in point: taxing greenhouse gas emissions is one way to make the negative economic profits of business activities visible and real. Many businesses fight this tax because it will cut into their accounting profits. But that’s exactly the point–by freely polluting, businesses are realizing falsely inflated accounting profits and shifting economic costs onto the society as a whole.

Predictably, the course went on to focus exclusively on measuring and managing accounting profits.Throughout our courses we did have sections on ethics, corporate and social responsibility, cultural awareness and sensitivity, and so on. I just wish that economic profit was given more equal time and emphasis in all our exercises as we learned to think like MBAs.

I understand that a business must first remain a going concern before it can have any impact on the community, positive or negative. As I told my staff when I ran an alternative newspaper, it’s hard to make change without making money. But because it’s hard doesn’t give us a free pass from at least trying.

How could your business increase its economic profits, and how would that impact its accounting profits?

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