Article 7
No business is founded to harm society, but many end up there
1-2 minute read
CAPSULE SUMMARY – Businesses can create societal harm via First-order or Second-order business impacts. And although we have made significant progress in holding companies accountable for their First-order impacts, we are currently failing at Second-order accountability.
7.1 One of the most basic 4th Stakeholder questions that needs to be answered by any organization is: what is the actual damage or harm I am causing in society, and what can I do to reduce it? Although the question seems simple, the answers can be elusive given the complexity of business systems.
7.2 Of course, once identified, any harm should become part of the company’s overall prioritization and consideration mix in terms of its 4th Stakeholder focus. By doing that, you are led to the critical decision of whether you should spend your limited capital and resources on creating more social good or reducing harm.
7.3 Before delving into this topic, we should remember that no company begins with a desire to harm society. All businesses start with a desire to deliver some value to customers in a way that builds a sustainable and profitable business. Even the most egregious social violators by today’s standard started with that positive intent.
7.4 Consider tobacco. Tobacco was cultivated and used for thousands of years before society began understanding the negative impacts of smoking. Philip Morris opened their first shop in 1847, and it wasn’t until 1912 that the first reported connection between smoking and lung cancer was reported. From that point forward, the cigarette industry provides a textbook example of the massive societal damage that shareholder-only focus can cause--but the initial purpose was simply to deliver a product that people wanted.
7.5 Unfortunately, we will never have the foresight to avoid creating a business that inflects from harmless product to societal harm. But we can and must be more vigilant and adjust proactively and rapidly to those danger signals when they begin to flash. Although we continue to make solid societal progress on reducing first-order impacts, very few companies today hold themselves accountable for their second-order effects in this proactive way.
We can’t just sit by and watch as Second-order impacts grow.
7.6 Instead, most companies effectively ignore their second-order impacts until the damage done is so great that it requires government intervention and regulation. This must change. We’ll never achieve the optimal 4th Stakeholder balance if we wait for our cities to burn down before we call the fire department. Leaders must learn to act when they see the first signs of smoke.