Margin & Mission

As an outspoken proponent of most things “green” and “sustainable” and an eager participant in friendly debate, I have too often come across the “sustainability is an added expense” argument. I believe this contention lies in the belief that sustainability is a cost to a firm – one which detracts from its primary purpose (presumably to maximize profits). While I can rationalize the origin of this argument, its laurels rest on the presumption that a firm neither (i) has an inherent obligation to incorporate these (or any other) values into its operation and (ii) that investments that do not have obvious or direct financial benefits at their outset do not have any promise of financial benefit.

In her keynote address at the 2011 Net Impact Conference, Sally Jewell, CEO of REI, eloquently reconciled the supposed gap between corporate expenditure on value-based investments and corporate financial performance with a simple phrase: “There is no mission without margin and no margin without mission”.

This simple phrase single-handedly articulates a cornerstone of my belief about the relationship between business and “sustainable” initiatives. Simply put, if a firm is irresponsibly generous with its investments in social and environmental initiatives, it may not be able to sustain such giving let alone its own survival. The demise of an overly generous firm hurts not only the immediate well-being of the cause it was supporting, but also sets a negative precedent for future corporate support of such initiatives. This leads to a conclusion that in order for a firm to sustain its support of socially and environmentally beneficial initiatives (its mission), it must also serve the financial needs of itself and its shareholders (its margins).

The values instilled in a firm can be a critical factor in determining its success. In the case of REI (or its Canadian equivalent, MEC), the corporate culture echoes that of its dominant client base – exaggeratedly generalized as left-wing, granola-munching, outdoor enthusiasts. Their mission, although centred around the provision of a certain set of products/services, is intrinsically linked to the values embedded in their corporate culture. This mission drives REI to include consideration of the impacts each of its activities has on society and the environment. With a client base driven by similar values, there is unquestionably a direct link between financial success and REI’s ongoing commitment to their mission.

A firm that adopts the belief that margins are driven by a mission which are in turn driven by strong margins will, if nothing else, draw a greater connection between its values and its financial success. In the presence of transparency, this pursuit of mission-driven margins will ensure that firms with values that align with those of its customers have greater success (by whichever metric you chose to measure it) than competitors who veer from its core mission in pursuit of short term economic gain.

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