Why ‘Do Good’ In Business?
It was day one on the job at a multi-billion dollar private equity firm as the new Director of Impact Investments. My boss, the CIO (Chief Investment Officer) called me into the break room overlooking a gorgeous afternoon at La Jolla cove and said “meet the guys who will be backing your future impact fund.” Three men in black suits were standing across the break room counter, and laughed at my boss “Why do good in business?” With my boss nudging me to answer, but surprised by the sudden question, I choked something out that was true but extremely convoluted. What I should have said was “Business is to do good. Not the other way around.”
Business is to serve people and other beings. Plants, animals, ecosystems, groups of people, etc.. It is a tool. Policy is set by governing bodies, and in a free market, those policies are the rules of the game. In a perfect governing system, the rules are perfect, and they incentivize businesses to create the best services for the benefits of all the beings that the governing bodies serve, including people and the environment. Unfortunately, as any business person is readily willing to admit, the government is far from perfect. And hence, the things that we are allowed to build in business often do not serve the health and wellbeing of the people and environments they should be serving. That is why “Impact Investing” exists.
Impact investing is investing to optimize for more than just financial return; also for social and environmental return. Investors, entrepreneurs, businesses and employees who acknowledge this, and seek to achieve the best thing for all stakeholders, even where policy does not demand it and the free market does not always immediately reward it, are playing in the impact space.
But saying that impact investments will always have a lower return is false. Impact professionals are not dawning chains, they are developing x-ray vision into the true hearts of the consumers, employees, and world in the long-term. You will avoid risks, recognize sweeping trends, hire the right people who will stay with you longer, and build relationships that last in perpetuity, aligned with the essential goodness that governing policy is trying to get at and allow markets to breathe life into. You are mission-driven, which does not measure success only by financial success, but with thousands of other clever metrics that go deeper into the impact your business creates. That said, when policy is spot on, as in some fields it absolutely is, impact is in lockstep with financial return, so every dollar you make creates another unit of optimal impact, so you can measure your impact via financial return.
You are also not limited to only playing in the realm of “market rate returns”. No, you look for the optimal rate of return in order to achieve the impacts you seek. As such, your business model may be philanthropy (aka total loss of capital) or beyond market rate, or maybe you have multiple entities that touch different segments of the spectrum of returns in order to capture the most impact (think of a private university that also has an endowment for low-income students).
Since that fateful first day in the office, I’ve made sure that my elevator pitch is sharp and ready to answer “Why do good in business?”
Answer: “Business is to do good.”
