While effective in driving profitability, this doctrine ignored critical externalities such as environmental degradation and social inequity.
We Need to Update Our Thinking on Economic Growth
For centuries, economic growth has been the ultimate measure of progress, grounded in efficiency and profit maximization. However, as environmental crises escalate and social inequalities deepen, this traditional model is no longer sufficient.
From macroeconomic calls for responsible growth to microeconomic strategies like Social Profit Orientation (SPO), the time has come to rethink how we define and achieve sustainable growth and prosperity.
Economic growth has long been seen as the cornerstone of societal progress, evolving from early theories of resource allocation to modern calls for responsible and sustainable practices. Daniel Susskind’s (2024) concept of "responsible growth" redefines macroeconomic objectives, urging policymakers to address environmental and social challenges alongside economic goals. At the microeconomic level, Social Profit Orientation (SPO) (Berry et al., 2024) provides a practical framework for organizations, connecting macroeconomic goals with actionable strategies.
Historical Foundations: From Efficiency to Responsibility
The history of economic thought guides rethinking growth. Adam Smith’s The Wealth of Nations (1776) laid the groundwork for modern economic theory, emphasizing efficient resource allocation and specialization. Smith viewed resources as finite, requiring careful management to maximize their value. Paul Romer (1990) expanded this vision by highlighting the role of knowledge, technology, and innovation as drivers of exponential growth, emphasizing their infinite potential compared to physical resources. Building on these foundations, Susskind (2024) advocates for a growth paradigm that integrates environmental sustainability, social equity, and ethical considerations. This shift recognizes that long-term prosperity depends on addressing systemic challenges such as inequality and climate change.
The Shareholders-First Doctrine and Its Failures
Milton Friedman’s (1970) shareholders-first doctrine dominated corporate strategy by prioritizing profit maximization above all else. The theoretical underpinnings of this approach, provided by Meckling and Jensen’s (1976) Principal-Agent Theory, reinforced the focus on short-term financial returns.
High-profile failures like General Electric’s collapse—where its market value dropped from $600 billion in 2000 to under $100 billion by 2020—and Boeing’s 737 MAX safety crisis illustrate the unsustainability of this model. These failures have prompted a reevaluation of corporate priorities, paving the way for stakeholder-centric models.
Transitioning to Stakeholder Orientation and Social Profit Orientation (SPO)
Stakeholder orientation shifts the focus from maximizing shareholder returns to creating value for a wider array of stakeholders, including employees, customers, communities, and the environment. This shift was exemplified by the U.S. Business Roundtable’s 2019 statement redefining corporate purpose. Social Profit Orientation (SPO), as described by Berry et al. (2024), formalizes this approach by integrating profitability with societal impact. Companies like Specialisterne, Gundersen Health System First Book, and Storebrand demonstrate how adopting SPO principles can lead to both financial success and positive societal contributions.
Linking Susskind’s Responsible Growth to SPO
Susskind’s call for responsible growth at the macroeconomic level necessitates microeconomic strategies like SPO. By using SPO to operationalize responsible growth, firms contribute to systemic change while achieving their economic objectives. This alignment ensures that corporate actions reinforce societal well-being, translating abstract macroeconomic principles into actionable practices. SPO extends Susskind’s vision by embedding ethical considerations and inclusivity into business strategies, ensuring that growth benefits all stakeholders.
Implementing SPO
The adoption of Social Profit Orientation (SPO) is rooted in the evolution of economic thought, which has long sought to balance efficiency, resource allocation, and societal well-being. Adam Smith emphasized the importance of resource management and specialization, arguing that markets thrive when guided by moral considerations. SPO builds on this legacy, extending Smith’s ideas into a framework that integrates profitability with social and environmental responsibility.
SPO equips organizations to address pressing global challenges while fostering long-term profitability. As stakeholders demand greater accountability on issues like climate change and inequality, businesses must align economic goals with broader societal priorities. By embedding sustainability into their core strategies, firms can remain relevant and resilient in an ever-changing market.
At its core, SPO provides a structured approach to balancing financial objectives with societal impact. It shifts the focus from maximizing short-term gains to creating shared value for employees, customers, communities, and the environment.
References
- Adam Smith (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. London: W. Strahan and T. Cadell.
- Romer, P. M. (1990). Endogenous Technological Change. Journal of Political Economy, 98(5), S71–S102. https://doi.org/10.1086/261725
- Friedman, M. (1970). The Social Responsibility of Business is to Increase its Profits. The New York Times Magazine.
- Meckling, W. H., & Jensen, M. C. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
- Susskind, D. (2024). Growth, A Reckoning. Cambridge, MA: Harvard University Press.
- Berry, L. L., et al. (2024). Social Profit Orientation: Lessons from Organizations Committed to Corporate Social Responsibility. Journal of Marketing, 88(1), 1–23. https://doi.org/10.1177/00222429241258495
- Kurtmollaiev, S., Lervik-Olsen, L., & Andreassen, T. W. (2022). Competing through Innovation: Let the Customer Judge! Journal of Business Research, 153, 87–101. https://doi.org/10.1016/j.jbusres.2022.08.018
For instance, Patagonia’s sustainable supply chains and Storebrand’s ESG-driven investments exemplify how SPO aligns profitability with societal well-being.
To implement SPO effectively, businesses must set clear objectives tied to sustainability goals. This involves investing in innovations like renewable energy, circular business models, or products with reduced environmental footprints. Stakeholder engagement is also critical, ensuring that initiatives address real needs and foster collaboration. By partnering with governments, NGOs, and communities, firms can amplify their impact and drive systemic change.
Equally important is measuring progress through robust metrics. Tracking financial outcomes alongside social and environmental impacts—such as reductions in carbon emissions or improved community well-being—provides actionable insights for refining strategies.
Conclusion
The shift from shareholders-first to stakeholder-focused models represents a critical evolution in economic and corporate thought. By integrating SPO, businesses achieve sustainable growth and operationalize Susskind’s vision of responsible growth at the microeconomic level. Firms that embrace this dual mandate will be better positioned to thrive in a rapidly changing world, creating value for both society and shareholders. Such firms will be part of the solution, not the problem.