Social Investment Disadvantages

2.1. Disadvantages

Even though social investments can represent major benefits simultaneously for the society and companies, investing in such projects also bears some disadvantages and risks that a company should take into account.

First of all, possible tensions between social and economic goals should be considered. While Porter and Kramer (2011) emphasize that company’s success and social process can be achieved at the same time by creating shared value, other authors question this theory. Crane, Palazzo, Spence and Matten (2014) point out potential tensions in companies between the pursuit of economic goals and social value creation. When seeking for enhancing social performance, companies often face situations in which social engagement

It is the major responsibility of the managers as agents to fulfill the requirements by the owners as principals. Even though many different parties demand a social contribution by companies, acting according to a social responsibility doctrine is rather a fallacy according to Friedman (1970) since corporations as artificial persons do not have responsibilities. Consequently, the arguing for social responsible companies are not only unjustified but also might lead managers to a behavior that does not correspond to the owner’s interest. Friedman (1970) highlights the importance of the business owner’s desire for all actions taken by the managers in a company which is usually to make as much money as possible while conforming to basic societal norms and values. Thus, more in-depth social engagement usually does not correspond to what shareholders expect manager to practice on behalf of the business but they rather want their agents to concentrate on profit generating. However, managers can decide as a person in their own rights to engage in societal valuable projects with their private resources. In their role as a manager though, they have to aim at profit maximization of the business and the shareholders (Friedman, 1970). Hence, companies will not comply with basic requirements of the principals if they invest in social projects without a clear

Both the payback of the investment amount and the profit of the social investment are connected to the outcome of the project. The project success for companies of those social projects is highly uncertain due to missing experiences and therefore hard to predict. Moreover, the mostly long-term nature of those projects is a major drawback for an accurate forecasting. Consequently, the social investments rather represent a risky form of investment. Additionally, companies are confronted with the same challenges like the municipality in terms of monitoring and evaluating of the investments (Bengtsson, 2015). While the investment in Social Impact Bonds leads to cash-inflows through the municipality in case of project success, the effect of direct investment into the project might be more difficult to quantify for firms. If e.g. a company aims at reducing losses from pilferage and sabotage (Freidman, 1970) and therefore participates in the “Solid Comeback” project as drawn up by Norrköping municipality (Knutsson, 2015; Bengtsson, 2015), the outcome of this investment will not be evaluable. However, measuring the impacts of those social investments is crucial in order to assess the companies’ success resulting from its efforts and to learn for