Part IV: A Behavioral Perspective

Chapter 7: Markets and Profit

1. Profit

Profitability ratios are among the financial metrics used to

evaluate a company’s performance when it comes to
generating profits in relation to their revenue, balance
sheets, operating costs, and investor’s equity during a
specific accounting time in the business. It shows
entrepreneurs and the investors how efficient the company is
in utilizing their assets to come up with an income.

2
2. Profit and CSR

• By definition, profit is what drives all for-profit organizations:

The pursuit of profit underwrites market-based economies and

forces companies constantly to innovate and improve by meeting
society’s developmental needs. Profit is also cited by business
leaders as a reason for not being able to pursue CSR. In this
perspective, CSR represents a short-term cost that the firm has a
duty to minimize in order to be as profitable as possible and
maximize returns to investors. One of the goals of strategic CSR is
to overcome this perceived divide between profit and CSR.

Chandler, Strategic Corporate Social Responsibility, 5e. ©

3
SAGE Publishing, 2020
3. Markets and CSR
• Markets capture our collective set of values:

A $5 T-shirt

versus

A $15 T-shirt

Chandler, Strategic Corporate Social Responsibility, 5e. ©

4
SAGE Publishing, 2020
Chandler, Strategic Corporate Social Responsibility, 5e. ©
5
SAGE Publishing, 2020
5. Markets and CSR

• According to CGS 2019 U.S. Consumer Sustainability Survey, more

than two-thirds of Americans consider sustainability when making a
purchase and are willing to pay more for sustainable products. Gen Z
shoppers led the way, with 68 percent having made an eco-friendly
purchase in the past year.

• CGS surveyed over 1,000 U.S. consumers on how sustainable

products and business practices are driving their buying preferences.
Despite price still being a big factor in purchasing decisions,
consumers are putting an emphasis on sustainability and are also
increasingly focused on shopping with brands whose mission they
care about

Chandler, Strategic Corporate Social Responsibility, 5e. ©

6
SAGE Publishing, 2020
6. Patagonia

Chandler, Strategic Corporate Social Responsibility, 5e. ©

7
SAGE Publishing, 2020
7. Value Creation

How do firms add value?

 Think of a company.
 How does that company create value?
 How does it distribute that value to its key stakeholders?

Chandler, Strategic Corporate Social Responsibility, 5e. ©

8
SAGE Publishing, 2020
9
9. Value Creation

Alphabet’s free suite of tools for education, including Google

Classroom, not only seeks to help equip teachers with
resources to make their work easier and more productive, but
it can also familiarize students around the world with Google
applications—especially those in underserved communities
who might otherwise not have access to meaningful
computer engagement at all. Nor is Alphabet reticent about
choosing not to do business in instances that it deems
harmful to vulnerable populations; the Google Play app store
now prohibits apps for personal loans with exorbitant annual
percentage rates, an all-too-common feature of predatory
payday loans

Chandler, Strategic Corporate Social Responsibility, 5e. ©

10
SAGE Publishing, 2020
10. Value Creation

Lego’s mission to “play well”—to use the power of play to

inspire “the builders of tomorrow, their environment and
communities”—has led to a program that unites dozens of
children in rural China with their working parents. Programs
such as these no doubt play a role in burnishing Lego’s brand
throughout communities and within company walls, where, it
reports, employee motivation and satisfaction levels beat
2018 targets by 50 percent. Or take Sodexo’s efforts to
encourage gender balance among managers. Sodexo says the
program has increased the retention of not only employees,
by 8 percent, but also clients, by 9 percent, and boosted
operating margins by 8 percent as well.

Chandler, Strategic Corporate Social Responsibility, 5e. ©

11
SAGE Publishing, 2020
11. Which Firm Adds More Value?

Share price: $199.26 Share price: $76.58

Mkt. Cap.: $917.13bn Mkt. Cap.: $324.06bn

Chandler, Strategic Corporate Social Responsibility, 5e. ©

12
SAGE Publishing, 2020
12. Which Firm Adds More Value?

Share price: $25.25 Share price: $188.28

Mkt. Cap.: $20.15bn Mkt. Cap.: $537.46bn

Employees: 443,000 Employees: 25,000

2017 revenue: $119.24bn 2017 revenue: $40.65bn

2017 net income: $1.56bn 2017 net income: $15.93bn

Chandler, Strategic Corporate Social Responsibility, 5e. ©

13
SAGE Publishing, 2020
13. How should we value Facebook?

“Facebook is worth $493bn, but only has $14bn of physical

assets. Its value is intangible and, potentially, ephemeral.”
Source: The Economist, March 24, 2018, p. 9.

Chandler, Strategic Corporate Social Responsibility, 5e. ©

14
SAGE Publishing, 2020
14. Economic Value + Social Value
economic
social value
value (philanthropy/
(profit/share recycling)
price)

Sustainable value
creation
(strategic CSR)

 In reality, there is no economic value and no social value, there is only

value, which the firm creates (or destroys) for each of its stakeholders.

Chandler, Strategic Corporate Social Responsibility, 5e. ©

15
SAGE Publishing, 2020
15. Profit Optimization

Profit maximization

versus

Profit optimization

Chandler, Strategic Corporate Social Responsibility, 5e. ©

16
SAGE Publishing, 2020
16. Profit Maximization

In economics, profit maximization is the short

run or long run process by which a firm may
determine the price, input, and output levels
that lead to the highest profit. Neoclassical
economics, currently the mainstream
approach to microeconomics, usually models
the firm as maximizing profit.

Chandler, Strategic Corporate Social Responsibility, 5e. ©

17
SAGE Publishing, 2020
17. Profit Optimisation

Profit optimization is the design and operation

of a business, to make it as good as possible in
some defined sense while maximization is the
act of raising something to its greatest value
or extent.

Chandler, Strategic Corporate Social Responsibility, 5e. ©

18
SAGE Publishing, 2020
18. Social Progress

Chandler, Strategic Corporate Social Responsibility, 5e. ©

19
SAGE Publishing, 2020
19. Unilever

Chandler, Strategic Corporate Social Responsibility, 5e. ©

20
SAGE Publishing, 2020
20.

21
22
22.

23
23.

24
Chandler, Strategic Corporate Social Responsibility, 5e. ©
25
SAGE Publishing, 2020
25.

26
26. Strategic CSR Debate

• Motion:

A company cannot be socially responsible

unless it is profitable.

Chandler, Strategic Corporate Social Responsibility, 5e. ©

27
SAGE Publishing, 2020
27. Questions for Discussion and Review
1. How do you respond to the assertion that “the most important
organization in the world is the company: [It is] the basis of the
prosperity of the West and the best hope for the future of the rest of
the world?” If not the company, what else?
2. Why is it true to say that there is no economic value and no social
value, there is only value? What are the implications of this argument
for the CSR community?
3. Is it OK for a firm to profit from poverty? Are there any limits to the
pursuit of profit? If so, how do we define them?
4. Assuming a firm found a profitable niche selling a product to the one
billion people in Level 1 (surviving on <$2 a day), how might such a
breakthrough help the firm sell to the one billion people in Level 4
(earning >$32 a day)?
5. Look at Unilever’s “Sustainable Living” site
(https://www.unilever.com/sustainable-living/). Before reading this
chapter, were you aware of this initiative? Does it change your
impression of Unilever? Is this plan CSR, or strategy, or both? Why?
Chandler, Strategic Corporate Social Responsibility, 5e. ©
28
SAGE Publishing, 2020
 CORPORATE SOCIAL
RESPONSIBILITY (CSR)
Lecturer: Dr. Xuanwei Cao
Office: BS226
Office Hour: 15:00-17:00 Wed.
Email: xuanwei.cao@xjtlu.edu.cn