Cash Is King, but Not a Dictator: The Balance Between Financial Performance and Social Impact

Thomas Eckschmidt cofounder of CBJourney - Conscious Business Journey and Conscious Capitalism Movement in Latin America, Coauthor of Conscious Capitalism Field Guide (Harvard Business Review?Press), TEDx speaker and Serial Entrepreneur.

In the business world, the phrase "Cash is king" has long been a mantra, emphasizing the importance of liquidity and financial health. A business can have losses for many years but will only run out of money once. However, in today's evolving landscape, a singular focus on financial performance can no longer be enough and is a clear myopic approach to our complex and demanding environment. Organizations must recognize that while cash is crucial, it shouldn't act as a dictator overshadowing social and environmental responsibilities and value creation.

The journey toward balance begins with understanding that financial performance and social impact are not mutually exclusive. Instead, they can complement each other, creating a sustainable business model that benefits not only shareholders but also all other stakeholders: employees, communities, suppliers, customers and the environment. We need to recognize the interdependence of the business with its ecosystem, beyond a mare value chain approach: supplier – company – customers.

The Financial Imperative

Let's not downplay it: cash flow is vital for any business. It's the lifeblood that keeps operations running, fuels growth, and provides a cushion during economic downturns. Without profits and solid financial health, an organization can't invest in innovation, employees’ development, or community initiatives. Cash is a consequence of value creation. Businesses need profit to survive but it should not be the reason to exist. Yet, treating cash as an all-powerful ruler can lead to short-term thinking and harmful practices, such as cutting corners, underpaying workers, overextending suppliers’ payment, or neglecting regulations in general.

The Social and Environmental Imperative

In contrast, focusing exclusively on social and environmental impact without maintaining financial health can jeopardize an organization’s longevity. Socially responsible initiatives, such as fair wages, sustainable sourcing, and community engagement, require funding. Likewise, environmental efforts like reducing carbon footprints or waste management also come with costs. Herein lies the challenge: achieving a balance where the financial backbone supports meaningful social and environmental endeavors.

Business Ecosystem

Companies that strike this balance often find a symbiotic relationship between their financial health and their social responsibilities. For example, investing in employee well-being can lead to higher productivity, reduced turnover, and ultimately, better financial performance. Similarly, adopting sustainable practices can reduce long-term costs and enhance brand reputation, driving customer loyalty and opening new markets.

Understanding that businesses are part of a broader ecosystem, allow leaders to improve their chances of success.

New Economic Order

Take Patagonia, the outdoor apparel company known for its environmental activism. By committing to sustainable practices and responsible sourcing, Patagonia has built a loyal customer base willing to pay a premium for its products. This approach not only bolsters the company’s financial performance but also amplifies its environmental impact.

Similarly, Unilever’s Sustainable Living Plan aims to decouple growth from environmental impact, demonstrating how large corporations can drive profitability while making a positive social and environmental contribution. Former Unilever CEO, Paul Polman, shared in his book, Net Positive, and important lesson from his tenure at the company: “Social and Environmental initiatives disconnected from company’s purpose are merely compliance activities, once fulfilled brings leadership back to financial performance”.

The Way Forward

For organizations striving to achieve this balance, a few guiding principles can help:

1. Clarify your Cause

Understand why you are in business beyond just surviving. At the end of the day, everyone wants to survive, but there must be more to it than just staying alive. State your purpose, why you are in business.

2. Lead by Example

Leadership is the most important tool to advance any agenda in any organization. As a leader make the purpose a priority without losing sight of the financial results.

3. Interdependence

Make sure you know your business ecosystem. You might find partners and promoters in the most unexpected places and competition could be a lever to advance a more important agenda to increase the “size of the pie”.

4. Culture

Promote responsible behaviors to strengthen your purpose and the leadership position of your team and organization. Be the example to be followed.

In conclusion, while cash is indeed king, it should not be a dictator. Organizations that balance financial performance with social and environmental impact not only build resilience but also contribute to a more sustainable and equitable world. It’s not just about making money; it’s about making a difference.

By embracing this balanced approach, Cause, Leadership, Interdependence and Culture, businesses can lead the way toward a future where financial success and social responsibility go hand in hand, creating lasting value for all stakeholders.

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