Firms should rethink business models to make social impact

Friday September 24 2021

Corporations are largely delineated into two broad categories: those driven by profit and those driven by social impact. PHOTO | FILE | NMG


Is the corporate goal of an organisation solely to return a profit to its shareholders, or should it be purpose-driven and respond to wider societal needs at the expense of robust profits? As the world confronts the fragility of the current consumption-based economic system with the attendant environmental effects and perpetuating inequality, it has turned more and more to sustainability and societal impact as a possible alternative. The conversation on sustainability, however, has not sufficiently addressed the dichotomy presented by attempting to create impact economies with corporations not designed to deliver impact.

Corporations are largely delineated into two broad categories: those driven by profit and those driven by social impact. Those driven by profit are usually pragmatic and efficient, with little concern for other indices beyond the bottom line. Companies motivated by social impact defy maximising profit and aim to improve the quality of life. What is becoming evident however, is that the delineation cannot be absolute.

Private corporations can no longer pursue profit while ignoring the social, political and environmental effects their business has. Neither can impact or development institutions claim to be adherent to social goals but promote inefficiency in delivering their services. Best practice seems to be shifting to the middle-ground, a hybrid between the need to run profitable enterprises which have a broader impact on the communities they serve.

Thought leaders like Dirk Schoenmaker, the Rotterdam professor of banking and finance, have called for an impact economy that recognises these often-divergent urges and coalesces them to improve corporate citizenship and improve the quality of life of customers, end-users, consumers and ultimately the country. Achieving this impact economy is often easier said than done, as corporate citizenship is often reflective of the economy and regulations of a country.

Most companies conduct their business either in a market economy where the government provides public goods, such as health, education and security and regulates economic activities. However, private companies are geared towards profit-maximisation and usually at the expense of a more profound impact. Or companies operate in a state economy where the government controls the production of private and public goods ostensibly to ensure broader service provision but usually at the expense of efficiency and individual enterprise.

In Africa, where the distinction between the private and public sectors is becoming less obvious and more transparent and where private corporations that thrive do so with considerable government incentivisation, it is often difficult to tell the difference between the two systems. What is clear is that either system or a combination of both have contributed to environmental degradation, economic inequality, and reduction in the quality of life in Africa.


Babatunde Oyateru is a communication and development professional who heads communication and external affairs for Shelter-Afrique. He is also a doctoral candidate in international relations