Milton Friedman famously said, “There is one and only one social responsibility of business – to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
Leaving aside those businesses which do not engage in open and free competition and do indulge in deception and/or fraud, and who prefer to play outside the rules of the game, this quote has created somewhat of a philosophical divide between two types of businesses - those who believe that their only responsibility is towards its shareholders, and those who believe that their responsibilities extend towards a larger public of stakeholders as well.
A good Indian example of the latter philosophy is the Tata Group, which publicly states that: "At the Tata group we are committed to improving the quality of life of the communities we serve. We do this by striving for leadership and global competitiveness in the business sectors in which we operate. Our practice of returning to society what we earn evokes trust among consumers, employees, shareholders and the community. We are committed to protecting this heritage of leadership with trust through the manner in which we conduct our business."
Does this kind of bipolarity reflect in the hierarchy of needs proposed in my last post? It can be argued that at the basic level of need - resources for survival - the most important stakeholder is the shareholders. All the other stakeholders - employees, vendors, customers, etc - are all via media to ensure survival. The importance of the community and society are not of a high order, since most surpluses generated need, necessarily, to be routed to the survival and health of the business.
However, at the same time, satisfying the needs of employees, vendors, and customers are paramount to the survival, and most of such needs are legally protected. Hence, even at this basis level, a business has to operate with a stakeholder approach.
In the context of the discussions on CSR over the last decade and a half, it can be seen that it is only from the second level of need - resources for growth - that CSR becomes meaningful and practicable. It is only from this stage onward that shareholders are likely to agree to forego some significant surplus to be given back to society, instead of being paid out as dividend.
Of course, there are and will always be businesses, who play within the rules of the game as they interpret them. Some of their actions are quite harmful for their reputations - as this article and this one about Walmart tend to show.
Fundamentally, however, it is likely that the owners of a business come with a belief in one of the two contending philosophies, and once the business is stable and growing, stakeholders other than the shareholders become important determinants on strategies and actions.
Leaving aside those businesses which do not engage in open and free competition and do indulge in deception and/or fraud, and who prefer to play outside the rules of the game, this quote has created somewhat of a philosophical divide between two types of businesses - those who believe that their only responsibility is towards its shareholders, and those who believe that their responsibilities extend towards a larger public of stakeholders as well.
A good Indian example of the latter philosophy is the Tata Group, which publicly states that: "At the Tata group we are committed to improving the quality of life of the communities we serve. We do this by striving for leadership and global competitiveness in the business sectors in which we operate. Our practice of returning to society what we earn evokes trust among consumers, employees, shareholders and the community. We are committed to protecting this heritage of leadership with trust through the manner in which we conduct our business."
Does this kind of bipolarity reflect in the hierarchy of needs proposed in my last post? It can be argued that at the basic level of need - resources for survival - the most important stakeholder is the shareholders. All the other stakeholders - employees, vendors, customers, etc - are all via media to ensure survival. The importance of the community and society are not of a high order, since most surpluses generated need, necessarily, to be routed to the survival and health of the business.
However, at the same time, satisfying the needs of employees, vendors, and customers are paramount to the survival, and most of such needs are legally protected. Hence, even at this basis level, a business has to operate with a stakeholder approach.
In the context of the discussions on CSR over the last decade and a half, it can be seen that it is only from the second level of need - resources for growth - that CSR becomes meaningful and practicable. It is only from this stage onward that shareholders are likely to agree to forego some significant surplus to be given back to society, instead of being paid out as dividend.
Of course, there are and will always be businesses, who play within the rules of the game as they interpret them. Some of their actions are quite harmful for their reputations - as this article and this one about Walmart tend to show.
Fundamentally, however, it is likely that the owners of a business come with a belief in one of the two contending philosophies, and once the business is stable and growing, stakeholders other than the shareholders become important determinants on strategies and actions.
No comments:
Post a Comment