By Chana Wakslak, Senior Business Editor and Business Manager
“How will this impact the bottom line?” has been reverberating throughout conference rooms ever since the formalization of businesses into distinct legal entities. The bottom line is synonymous with a company’s net income – the bottom line on its income statement. This number reflects how much money a company walks away with once deducting total expenses.
Traditionally, companies have prioritized improving this number, given its significance in indicating profitability. However, in recent years, there has been a discernible shift away from the singular focus on the bottom line. Companies are increasingly directing their attention towards their broader social impact. Rather than solely prioritizing the interests of stockholders – individuals who own shares and consequently benefit from financial prosperity – companies are expanding their purview to encompass stakeholders: all those impacted by their actions.
At the Sy Syms School of Business, honors students are required to enroll in “Business as a Human Enterprise,” a course taught by Dr. Moses Pava, former Dean of the Sy Syms School of Business. This curriculum delves beyond the confines of a business’s financial metrics to explore its ethical responsibilities and the process of value-based decision-making.
Many discussions in this class circle around the question of what is the fundamental role of a company. Is it solely profit maximization, pushing the boundaries of financial gain? Or should companies acknowledge their role as societal contributors, recognizing their impact on various stakeholders, akin to individuals?
While some, like economist Milton Friedman, advocate for a focus solely on financial metrics, and believe that only individuals – not corporations – can have a sense of social responsibility, younger generations increasingly embrace corporate social responsibility. They recognize the physical and social impact companies wield and advocate for sustainable business practices.
The shift away from the bottom line suggests that companies must now strive to maximize their positive influence in order to stay relevant. Yet, how does this alteration in focus affect the bottom line? Analyzing prevailing trends, it appears that companies are navigating this transition with varying degrees of success.
Many companies focusing on positive social measures have found popularity with new audiences, as customers increasingly look to do business with socially responsible companies. These new audiences can help increase a company’s bottom line.
However, missteps can have adverse effects. Making social statements incongruent with a company’s core values or expertise can backfire, alienating customers and impacting revenues. For instance, in 2017, Walmart settled a case about their greenwashing – also known as the accusation of fake environmental concern – highlighting the risks associated with insincere claims.
The traditional emphasis on the bottom line as the primary measure of business success is undergoing a significant shift. While profitability remains crucial, companies are increasingly recognizing the importance of broader social impact and stakeholder interests. As businesses navigate this landscape, they must balance financial performance and social responsibility to succeed in the long term.