Social responsibility and the corporate context
There’s a restless, unending struggle to define a “good” business. Is it about balancing the needs of stakeholders or generating social change?
Milton Friedman’s famous 1970 New York Times Magazine piece posited that profits alone sit at the core of a company’s responsibility. In a free society, Friedman wrote, “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.’”
To this day, his position remains challenged, with his more benevolent critics saying that he was only partially right. As Henry Ford said, “A business that makes nothing but money is a poor business.” Businesses need to pay attention to all stakeholders, not just the investors — and this includes focusing on the good of society.
That said, Friedman is right that profits are vital. Profits are to a business like red blood cells are to the human body. If I did not have any, I’d die. But as I write this, I’m not focusing on producing red blood cells. They’re a product of my entire biological system. I cannot focus on producing red blood cells. I can only live a healthy and meaningful life. Everything else follows from that. A firm cannot survive without profits, but it cannot actually focus on producing profits per se. Firms need a higher aim, a transcendent goal in order to be sustainably viable.
To capture this idea, businesses craft mission statements that go beyond beating quarterly numbers. Here are some examples: “A world that works better” (GE). “Whole Foods, Whole People, Whole Planet” (Whole Foods). “To contribute to progress in mobility” (Michelin). “Build the best product, cause no unnecessary harm, use business to inspire…” (Patagonia).
All of these mission statements indicate the “something extra” that each company aims for. With any business, such goals need to be identified and ranked before the heat of the competition begins. It’s a bit like your own life: Successful people set their priorities before life gets busy. Moreover, it’s important not to remove the higher aim of the business from the actual work it undertakes. The two must fit. If they are too far-flung, the aim seems arbitrary and irrelevant. The company looks like it’s paying lip service to an aim it doesn’t actually embrace.
One aim that every company can embrace is excellence of work. Through our work, we not only make more, but we become more fulfilled, more fully human. When we produce goods that are truly good, when we provide services that truly serve, we not only make a profit, but we add lasting value and true progress. Pride in our work, as a company, leads to logical and key objectives that we should pursue: creativity, expertise, human virtue, quality, high and rising wages and, yes, profitability. Built on this perspective, I suggest that businesses adopt three hierarchical objectives: It has to be creating, supporting and rewarding.
Creating: A business is creating when people work together to pursue a common good by giving life to an idea, product or service. This positive transcendence is violated when the idea, product, or service destroys life — literally (e.g., suicide machines, deadly drugs, etc.), spiritually (e.g. addictive substances, pornography, etc.), or environmentally (e.g. exploiting natural resources, polluting practices, etc.) for individuals or cultures.
Supporting: A business is supporting when it effectively fulfills legitimate customer needs at a competitive price. Business has to be inherently other-directed to receive the support of its clients. This creates a kind of mutual support: the business fulfills the customers’ legitimate need for a solution and the client fulfills the business’ reasonable need for income.
Rewarding: A business is rewarding to its employees and owners — psychologically and physically — when it generates enough profit to sustain a reasonable system of financial rewards (high and rising wages, shareholder return). This is important for attracting and motivating good employees — and incentivizing its investors.
What’s true in human relationships is true in business relationships. When the good of the person comes first, overall results improve. This focus must become the underlying attitude or guide, shaping decisions, policies and practices. Once this forms the foundation of your professional and personal ethic, your business and everything else in your life will flourish. A “good” business might focus on profit or social change or stakeholders, but a great business is one that creates, supports and rewards!
ANDREAS WIDMER is an author, former Swiss Guard, and the director of entrepreneurship programs at the Catholic University of America’s School of Business.