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Are The Vision And Goals Of Modern Companies Misaligned?

Can a need to maximize profits in the short term align with long term societal good?

31May

There has been a push towards creating more sustainability within companies, from the places we source our raw materials, through to allowing dogs in the workplace. This has predominantly come from startups who have influenced the ways that people view what companies should do. Instead of being consumers and money making machines, companies should have some kind of social good, they should be looking at long-term gains, not only on their balance sheet, but on the positive impact they have on the world. More-or-less every single large corporation has some kind of CSR program, which many believe is a move in the right direction.

However, this runs counter to the ultimate aim of most companies.

The ultimate goal of most entrepreneurs (although there are some notable exceptions) is to create a company that they can sell for as much money as they can. This is the idea that most often runs counter to these ‘clean’ aims that many companies claim to represent.

If a founder wants to sell their company for the maximum amount of money, it needs to be shown to have minimal expenses and maximum returns. Nobody is going to want to buy a company that is barely breaking even because of the way they are run, so expenses like childcare, voluntary maternity/paternity pay, regular large charitable giving, employee perks etc - although positive for the employees - ultimately run counter to the end goals of the founders. Maximizing a company’s monetary value pre-sale therefore often means minimizing its social value, the very thing that many new companies attempt to use as their unique selling point.

This creates a unique challenge for company founders and may mean that in order to stay true to their original beliefs in changing systems and improving the world, they will need to turn their backs on the purpose of what many ultimately see for a startup - an eventual sale - and instead concentrate on building it to become a strong company in itself, whilst also avoiding the temptation to cash out.

It is not initially cheap to run a company sustainably, the outlays for things like solar panels, sustainably sourced raw materials in the supply chain, and employee benefits is high. It is only over a relatively long period that the financial benefits appear. It is over the long term that not only the financial and CSR impacts come good, with the average outlay for solar panels taking an average of 14 years to begin paying for themselves according to ecoexperts.co.uk. This makes them difficult to justify installing if, like most startups and private equity companies, you have an exit strategy between 3 to 7 years. If a founder is planning on running the company for the next 40 years though, this kind of investment is a no-brainer.

This isn’t only with service-based, or even office-based companies either, but short-termism is forcing poor decisions to be made and it is a cycle that is difficult to rectify due to traditional financial models. According to Food and Water Watch, the number of factory and intensive farms in the US has been increasing over the last 2 decades, dominated by only a handful of companies across the US, adopting chemical heavy growing and rearing techniques that ironically destroy the soil, absorbs less carbon and makes it harder to grow again in the future. Farmers who have adopted the use of GM Soy Beans, for instance, have been forced to use 28% more herbicides since 1998 and traditional chemicals often don’t have the same impact on weeds, insects, and diseases in modern crops, becomes resistant. This has increased the amount and variation of chemicals used to maintain crop yields, further damaging the land needed to grow them.

However, in one case study from HBR which followed an organic cotton farmer in Egypt, after the initial costs of the sustainability changes, his crops were found to be considerably more profitable than intensively farmed modern equivalents. The plants required 20-40% less water, average yields were up 30%, and the business saw annual increases in revenue of 14%, not to mention the land absorbing considerably more carbon dioxide and even reclaiming land from the Sahara Desert, which has been growing in the past few years. This doesn’t just go for cotton either, with similar results shown for replacing the modern Triticum aestivum wheat (which makes up around 95% of all wheat grown in the world) with older strains, which have considerably larger root systems, produce more yield, and cost less to grow.

With this in mind, it begs the question of why more agricultural companies, both big and small, don’t shift to these more sustainable and profitable crops. It’s simply because in order to do so requires at least a year of nurturing the soil to make it useable again after its history of decimation since the industrial revolution. This requires intensive composting, turning and simply waiting for it to become useable again, for microbes and organisms to come back. This process costs money to undertake, especially when you consider that around 45% of the total landmass of the US is used for some form of arable farming. It will also produce nothing for at least one year, making it untenable as no company is willing to take that hit even if it makes things better in the long run, so the current system continues to very literally destroy its foundations to continue making a profit.

Whether it is in a startup launching a new app whilst doing good in the world or a farmer looking to save the fields they work, there is a direct contradiction in the good they want to achieve and the money they need to make. The issue is going to be finding a way for people to break this model moving forward. 

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