For-profits gone wrong

For-profits gone wrong

How can a company filled with good people do bad? Why are some of the richest companies the ones that do most harm to society? 

We have built a system that puts profit over people. When given the decision between more profit or sustainability or people’s well-being, companies routinely choose the former. It’s not because these companies are run by bad people, but because these companies run within a system with the wrong incentive. A system that cares only for profit and doesn’t put any cost on harming people or the planet. These companies either grow and make more money, or they die. Just like us, they choose to live, whatever the cost. Can we blame them? 

For-profits’ focus is to maximize profits within the boundaries of the law. Every successful company exists because it makes something that people want. If you make something that people want, it’s easy to grow your business and make your first profit. And then you can get money from an investor or sell shares on a stock market so the company has money to grow even bigger. But these investors and shareholders have high expectations. They invest because they want their money to turn into more money. And that’s only possible if the company they invest in continues to grow and generate more profits. If the company fails to continue growing, the investors and shareholders sell their shares and the company's free fall starts. Public companies grow or die.  

We think companies are started by people with good intentions, but the road to hell is paved with good intentions. Take the example of Facebook (now called Meta). Facebook started to connect college students online so they could share photos and stories. That sounds fun and it was. It grew and grew with its original goal of connecting people by adding more people across more countries. It got shareholders and went live on the stock market. After a while it had a harder time finding more customers. At first, Facebook found competitors they could buy with the money from its investors and it bought Instagram and WhatsApp. But even that’s not enough if you always need to grow. So they collected more and more of your data and sold it to the highest bidder. Facebook could now sell your data for more money, but it could sell even more ads if you were on Facebook or Instagram longer, so Facebook needed to find a way to make you addicted. 

They looked at casinos for inspiration and a whole team whose only objective is to keep you on Facebook and Instagram longer made changes to the product. But even new like buttons, games and features weren’t enough. So they went even further and found that when they served more and more extreme content you stayed around longer. The left got lefter and the right got righter. 1 in 6 Americans are not sure the earth is round and 1 in 5 think 9/11 was a setup. Boys and girls got more and more depressed and teen suicide is going up and up, partly because of Facebook and Instagram. Based on leaked internal reports, we know that Facebook knew. When they found out what their platform was doing to people, they decided to continue, because angry and depressed people love being on Facebook and Instagram. So Facebook can sell more ads and keep shareholders happy for another year. We don’t think Mark Zuckerberg was a bad guy when he started, and we don’t think he is now, but Facebook is trapped in a system where the primary goal is to generate as much profit as possible, whatever the cost is to people and the planet. 

And Facebook is not alone. Type in any big companies’ name + lawsuit in Google and you’ll see they often try to find profits even outside the rules of law. They start off well, but eventually they need more and more extreme ways to maximize their profits, and ultimately their overall impact on people and the planet is negative, where they started out to make life better for people.

So for-profit companies start off well, but when they scale with investors and shareholders, some companies find ways to generate profit that have a negative impact on people and the planet. In some cases this escalates to companies that make a lot of profit, but generate a lot of social cost to people and the environment. Eventually people resist these companies and governments regulate these companies, forcing them to change for the better or die. With the many lawsuits around Facebook, it’s likely they will be forced to behave better or face the consequences. 

But for-profits and investors aren’t all bad. Or bad at all. You’re reading this on a device that would not have existed without them. You eat well, sleep well and live well because you have products and services that make your life better, and most of them are made by for-profit companies. We’re mostly out of the covid pandemic because we have vaccines made by for-profits. Innovation exists because people pay for things they want. And some of the most innovative companies could not have existed without the investors and shareholders to build companies until they are profitable. We’re almost certain that the average life would have been much, much worse without for-profits.

But we’re also almost certain that the average life could be much, much better if we create systems that work for many, not for few.

Problems with non-profits

Non-profits always mean well, but sometimes unintended consequences lead to negative outcomes. Other times non-profits aren’t effective and spend too much of their time and money on the wrong things. This is why many people think that it doesn’t matter if they give to charities. The truth is that what non-profits do matters a lot, but the differences between the effectiveness of charities are big.

Impact of non-profits

Source: Robert Boogaard, Jazi Foundation

On the one hand, you have charities that have a negative impact, but these are the minority. A famous example is the PlayPump. This is a merry-go round device that pumps up water when kids play on it. That sounds like a fantastic idea, but if no children were around, older women had to push it round for hours getting the water up. PlayPumps broke down and repairs were too expensive for locals. Ultimately, traditional hand pumps were a much better use of charity money. 

On the other hand, effective charities save lives for around $4.500 and they improve lives for dramatically less. The cost of your next cappuccino can pay for a bed net that might save someone from dying of Malaria. Improving and saving lives through donations is within reach for most companies and some people. The problem is that most companies and people don’t donate to the most effective charities. People donate with their hearts, but it’s more effective to donate with your head. The Effective Altruism movement is all about doing good better. It’s a movement that has shaped everything we do. 

At BOAS we are also committed to maximizing our impact, and that means we need to donate to effective charities. But we still want to give you options, so we are going to give our customers the option to donate to effective charities in different areas, such as health, poverty and environment. Giving away isn’t always easy if we don’t know where and how! Our goal is to inform you best and provide you with means of how to do good for our planet and how to help the ones in need. If you want to know more in-depth about how non-profits operate and how they use donations, you may continue with our next blog!